Liberator Medical Holdings Inc fka LBMH

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LBMH >> Singular Research initiates coverage for LIBERATOR MEDICAL HOLDINGS INC with BUY recommendation.
BY Investars Analyst Actions - public
— 12:03 PM ET 10/29/2015

On October 29, 2015 Singular Research initiated coverage for LIBERATOR MEDICAL HOLDINGS INC (LBMH) with a BUY recommendation.

(above from Fidelity news)


and courtesy of Seeking Alpha (Articles)

http://seekingalpha.com/

Liberator Medical Holdings - Initiating With A BUY Rating
Nov. 6, 2015 2:37 PM ET | About: Liberator Medical Holdings, Inc. (LBMH)
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)

Summary

We initiate coverage with a BUY rating and a $3.60 price target.

Consistent revenue growth for a number of years, with a 5 year CAGR of 25%.

Experienced management team that has executed this identical business model with a similar product.

INVESTMENT THESIS

Liberator Medical Holdings, Inc. (NYSEMKT:LBMH) is a distributor of durable medical supplies, predominantly urological and ostomy supplies. The products that LBMH sells are generally supplies which customers need on an ongoing basis (usually for life), which means there is a recurring nature to the business. Liberator markets to consumers via direct response television and radio advertisements, online advertisements, and through their website. The firm was founded in 2001 by Mark Libratore, and is headquartered in Stuart, FL.

Mr. Libratore previously founded and sold a very successful company called Liberty Medical, and Liberator has followed the same business model with a slightly different product. Liberty Medical was well known for selling diabetes supplies direct-to-consumer via direct response television ads. Mr. Libratore eventually sold Liberty Medical to Polymedica, and stayed on to lead the company to substantial subsequent growth and an eventual sale to Medco for $1.5 billion. Liberty Medical was sold at a fairly early stage in the company's growth. With his second company, Liberator, Mr. Libratore planned to maintain a substantial interest in the company through much more substantial growth. Currently, Mr. Libratore maintains approximately a 37% interest in Liberator's common stock, and the company has a market cap of just under $130 million.

In addition to Mr. Libratore himself, he has brought along a senior management team that is also familiar with the business model, and many of them were with him at Liberty Medical. The company has maintained a robust rate of growth since its founding, and over the past 5 years has approximately tripled revenue from about $25 million in FY:08 to about $75 million in FY:14, for CAGR of about 25%. During most of this time, the company has reinvested substantially all of its cash flow into advertising to drive additional revenue growth. Starting in FY:13 the company made a conscious effort to cut back on ad spending, which did slow revenue growth, but created positive EPS and freed up cash flow to institute a meaningful dividend. At this point in time, the company is growing more modestly, but the revenue growth is still significant and projected at about 10% per annum by us for the next few years. We see EPS as flat to modest growth, with cash generation sufficient to maintain the dividend, but the rest being used to spend on advertising for further growth. Management has done a superb job of managing cash flow over the past few years.

For some time now, management has indicated (during conversations with investors at various times) that their goal is to grow to company to approximately $100 million in annual revenue, and then make a decision as to the future of the company. Given Mr. Libratore's significant interest in the common stock, we see this decision as being aligned with the interests of the shareholders. LBMH had revenue of $74.6 million in FY:14 (Fiscal year ends Sept 30), and we project 9.5% growth to $81.9 in FY:15. Per our projections, LBMH should hit $100 million in annual revenue in FY:17. While we think the company can provide for meaningful dividends and substantial capital appreciation in that time frame, we also believe that the opportunity exists for an even more significant gain through a sale to either a strategic buyer or private equity. In FY:13, the closest competitor to LBMH, Rochester Medical, was sold to Bard for $262 million. While Rochester both manufactured and distributed product, it was similar in size to LBMH, and sold at a substantial premium to revenue and earnings compared to where LBMH trades today. LBMH may also make an attractive target for a private equity buyer as it has stable and recurring cash flow, the opportunity to dial current cash flow up or down by adjusting spending on advertising, and an opportunity to introduce leverage as there is currently no debt on the balance sheet with the exception of a small line of credit.

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