In February 2021, I called Haemonetics Corporation (NYSE:HAE) a pure play on hematology, aiming to help patients who suffer from this condition by offering innovative products and solutions. HAE shares traded at a premium valuation at the time, but not for long, as shares plunged amidst fears on the loss of one of its key customers, after which the company and shares have seen some kind of stabilization.
A Recap
Haemonetics generated nearly a billion in sales in 2021, with revenues generated across three segments of which plasma is responsible for nearly half of the sales, almost entirely derived from disposables which relate to donor technologies, collection devices and donor management software.
The company has a blood center segment as well, responsible for about a third of sales, with blood transfusion activities down due to the continued rise of minimally invasive surgeries and blood management. The smallest deal is the direct to hospitals business, with a fifth of sales generated in this segment.
Haemonetics Corporation shares traded range bound between $20 and $40 during the latter 2000s and early 2010s as shares rose strong from 2017 onwards, trading near the highs at $130 in February 2021. This was a rather steep valuation. After all, the company reported sales of $988 million for the fiscal year 2020, ending in March of that year, up a mere 2% on the year before.
The company posted adjusted earnings of $171 million, equal to $3.31 per share, indicating that the business was solidly profitable, although that GAAP earnings only came in at half that number. While the adjustments made to earnings looked fair and made sense, many of the charges were seen in previous years as well, and sometimes involved cash outflows, making me a bit cautious to blindly use the adjusted earnings numbers.
Sales fell by double-digit percentages following the outbreak of the pandemic, as 51 million shares gave the company a $6.1 billion valuation at levels around the $120 mark. Amidst pressures imposed on the business following the pandemic, Haemonetics announced a substantial $475 million deal to acquire Cardiva, in a deal set to add $70 million in annual sales.
Believing that there was a roadmap for earnings to recover to $4 per share in a post-pandemic environment, factoring in a contribution from Cardiva, I was simply very cautious at more than a 30 times forward multiple as some debt was apparent because of the deal as well. Part of these higher valuations was driven by the potential from Haemonetics´ NexSys system, destined to become the standard for plasma collection. Despite this promise, shares looked a bit too demanding for me to get involved.
What Happened?
A reversal from levels of the $120 mark arrived quickly as shares were down to the sixties in April 2021, less than two months after I last looked at the company, as in fact, I bought some shares on that drop.
The drop was induced by the news that CSL Pharma, one of the company’s biggest customers, decided to not renew the usage of the PCS2 Plasma Collection Systems post-summer 2022 (although it still remains a customer as of now). Shares fell further to the mid-forties in the early 2022s, although that shares have recovered in a rather steady fashion to $90 at this moment of writing.
Forwarding to May 2022, the company posted its fiscal 2022 results. Revenues rose 14% to $993 million, as the top-line sales number was on par with the 2019 results, pre-pandemic. It should be said that the Cardiva deal contributed $98 million to the topline results, indicating that the core business (excluding Cardiva) still had not recovered entirely. Full year adjusted earnings rose in a modest fashion from $2.35 to $2.58 per share, although that GAAP earnings fell from $1.55 per share to $0.84 per share. Net debt was quite stable, around $514 million.
The 2023 guidance looked reasonable, but was not necessarily convincing with sales seen up 6-10% from a lower base, with adjusted earnings seen rather flattish between $2.50-$2.90 per share.
In May of this year, it was evident (in fact it became of course evident during the year) that an 18% increase in full-year sales to $1.17 billion was stronger than guided for. Adjusted earnings rose to $3.03 per share, outpacing the conservative guidance as well, with GAAP earnings of $2.24 per share showing a meaningful decline in the adjustments made between both earnings metrics. Net debt fell in a modest fashion to $481 million, bringing leverage down to less than 2 times according to my math.
The company provided a solid guidance for 2024 with reported sales up 4-7%, amidst a point headwind from the strong dollar, with adjusted earnings per share to show a more pronounced improvement to $3.45-$3.75 per share, still far lower than my $4 per share estimate (or better said hope) back in 2021 in a post-pandemic world.
What Now?
Fast forwarding between early 2021 to now, we have seen a $130 stock with earnings power just north of $3 per share coming down meaningfully. Haemonetics Corporation shares are now down to $90 per share, with earnings improving to $3.60 per share this year, reducing 39 times earnings multiple to 25 times adjusted earnings.
This marks a big pullback in the valuation, but this is still based on adjusted earnings. Quite frankly, I think that Haemonetics Corporation’s valuations are still too demanding, as the operating performance in recent years has been reasonable, but nothing too exciting.
Given this backdrop, I am a bit cautious, as Haemonetics Corporation shares have doubled already over the last year, as quite frankly, I am looking for an exit of my small position which I initiated in the spring of 2021. Amidst modest growth and reasonable leverage, I see no reason why Haemonetics Corporation shares should trade at a big premium. Based on a market multiple on adjusted earnings, this translates into a fair value/interesting entry point for Haemonetics Corporation stock in the $60-70s.
Read the full article here
