Direct Sales In China, Canada, And Sweden Will Improve Market Control

Key Takeaways

• Expansion into direct markets in China, Canada, and Sweden aims for higher growth through better control and margins than distributor sales.
  
• Focus on Vascular surgery and increased R&D spending promises future growth, operational efficiency, and enhanced customer satisfaction.
  
• Expansion challenges and operational shifts in China, coupled with currency issues, may strain margins and limit Medistim's overall financial performance.

Catalysts

Develops, produces, services, leases, and distributes medical devices for cardiac and vascular surgery in the United States, Europe, Asia, and internationally.

• The transition to direct market operations in China, Canada, and Sweden, including the new establishment in these countries, is expected to provide greater control over market activities and drive revenue growth through better profit margins compared to distributor-based sales.
  
• The strategic focus on expanding the Vascular surgery segment, which shows significant growth, is anticipated to enhance revenue streams as this strategically important sector for Medistim could capture a larger market share.
  
• A deliberate increase in R&D spending, aimed at innovation and the development of automation and software projects, is expected to lead to improved operational efficiencies and customer satisfaction, potentially impacting net margins and future earnings positively.
  
• The significant growth in sales from the Americas region, particularly the USA, is expected to bolster overall revenue performance, especially given the high price realization from sales in this region.
  
• The potential future expansion of direct operations into more countries, such as Japan and parts of EMEA, is seen as a catalyst for revenue expansion, as direct market approaches have previously demonstrated better performance versus distributor models.

Medistim Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Medistim's revenue will grow by 3.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 18.8% today to 19.7% in 3 years time.
• Analysts expect earnings to reach NOK 117.6 million (and earnings per share of NOK 6.43) by about February 2028, up from NOK 101.6 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 31.6x on those 2028 earnings, up from 28.6x today. This future PE is lower than the current PE for the GB Medical Equipment industry at 174.6x.
• Analysts expect the number of shares outstanding to grow by 0.18% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.25%, as per the Simply Wall St company report.

Medistim Future Earnings Per Share Growth

Risks

• The decline in sales to Japan and the challenges faced in transitioning from distributors to direct operations in China could impact revenue and overall earnings.
  
• The lower unit sales of high-margin imaging systems and associated probes may negatively affect gross margins and net profit.
  
• Increased operating costs due to new direct market operations in Canada, China, and Sweden, and the implementation of double production shifts, could strain net margins.
  
• Currency fluctuations, particularly negative positions on the Norwegian kroner against the U.S. dollar and euro, have led to reduced net finance results, affecting net earnings.
  
• Flat growth in the number of procedures in the U.S., despite high sales, could limit long-term revenue potential if not addressed effectively.

Valuation

• The analysts have a consensus price target of NOK172.0 for Medistim based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be NOK596.2 million, earnings will come to NOK117.6 million, and it would be trading on a PE ratio of 31.6x, assuming you use a discount rate of 6.3%.
  
• Given the current share price of NOK158.5, the analyst price target of NOK172.0 is 7.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.