IART and The CC
Brought a bunch more IART at $22.89 today. Here is what I think.
Boston
First let me start on Boston, this is the unmitigated disaster, Now Who knows if it comes back at all at least sometime in 2025. Possible different Location, one thing that is obvious is that $3.60 estimate is now bye bye in my opinion, although even without Boston I expect FY 25 to be a year of growth from fy 24 numbers (So still thinking $3.30-3.40 even with no Boston). But can't act like the thesis didn't take a hit today, the thesis was Boston being a part of this which is why I thought the $3.60 even had upside, clearly now can't include boston in my mind even in fy 25 in the analysis), and who knows when that is coming back at this point of if it is coming back? Or a possible different location at this point.
The Guidance
Of $3.01-3.11, I actually was worried it could be worse in my worst case scenario, I thought that was a positive now that boston is completely out of the numbers, and the numbers held up better than I thought they would. Keep in Mind they are having higher costs from Boston (Fixing the problems), with no revs, so that is the main reason for lowering of guidance. To be fair it has become obvious to me supply chain is also a problem some thanks to Boston obviously, but there integra skin business has had trouble meeting demand. Now the positive the demand is there, the negative is they have not been able to meet the demand yet, but the facilities for this are at least ramping up more, not hopes of someday in the future but it is actually in the process of happening and is online allready with capacity expansion underway. The integra skin business they believe will start really ramping up in the 2nd half meeting demand. Margins should improve a bit sequentially, but still be down y/y because of the expenses with boston and some supply chain issues. Further improvement will happen in fy 25 and beyond on the margin front.
Now the good news is guidance shows that there is gonna be really good growth in the 2nd half y/y, if they hit the numbers the stock will massively rebound. if they don't than I will be completely wrong an take a tax loss at the end of the year that is how I plan to play this stock. I actually believe the numbers now show extra costs from boston, I also think in the second half they are gonna be a 5-7% grower of revs (Organically) and more on profits from q3 on, even without boston. Shows you how well those number would of looked if Boston hasn't been a disaster, there is no way to sugercoat this.
I still think it will receive a lower level sector pe in a year, if they have no further issues, so I still think it will get a mid teens multiple. But now I feel FV is probably around $50 instead of $60.
Now IART Should return to growth in the 2nd half, right now I don't think the market believes that is going to happen without boston,but the thing is this company is a mid single digit grower organically and will start to show that in the second half, because they are now comping out boston revs in y/y comps.
Now the Acclarent business they acquired sounds promosing. They think it will grow high single digits like in FY 25 and beyond is what I heard. Obviosuly the ENT business will be like a third unit from them. Granted it i supposed to be around neutral to adjusted eps this year, and my understanding accretive going foward. Wouldn't surprise me if it is another slight headwind buried in q2 numbers and most likely improve after that. Than again that is just a guess as it really wasn't broken down.
All and all your getting a company that even without boston probably in fy 25 could earn say $3.30-3.40, and a company that will return to mid single digits organic revenue growth, with high single digits to low double digits eps growth going foward. For less than 8 times this years revised numbers and about 7 times what I think they can earn in fy 25 even if Boston disappears. The positive is the rest of the business if anything is stronger than I expected, the bad news is I thought Boston would definetely be around in fy 25. Mangement now has an issue that I don't think anyone believes there guidance. They are gonna have to come in q2 and reiterate guidance, and not drop anymore negatives. The stock will stabilize and start going up, I think the market has hit this company today so hard, because of who knows on Boston, but also I think who believes in management. It is clear to me they had no clue on Boston, and they still don't. It is also clear to me there rest of there business is running well and if anything slightly better than I thought, since they have kind of exed boston out completely now I have more confidence they will hit the numbers now, the market and the analysts are having an issue believeing them right now, and although I do at this point, I understand why not for the analysts. All is just my opinion, and I could always be wrong though.
