Shares of Teleflex (NYSE:TFX) are flat so far in 2018 thanks to a quick decline in early August — one that interrupted Teleflex stock’s more or less steady upward movement, which investors had enjoyed since 2011.
For those less familiar, Teleflex is a medical technology company with vascular, surgical and anesthesia products –v85% of which it sells directly to hospitals and healthcare providers, according to TFX’s 2017 annual report.
Teleflex stock has regained a lot of what was loss already, but it’s still down slightly from 52-week highs. For investors considering buying, here are five things to know about TFX stock.
1. Acquisitions. Last year, Teleflex made two acquisitions which its management called the most significant in the company’s history. Vascular Solutions, which Teleflex bought for $1 billion, plays into the company’s core revenue area. The company has over 90 proprietary products for for minimally invasive coronary and peripheral vascular procedures.
Meanwhile, the company also bought NeoTract, which has minimally invasive technology for treating urinary tract infections. That acquisition came at a cost of $725 million upfront.
2. Slowing growth. While these acquisitions are an attempt to stoke the fire, the tough reality is that growth is expected to slow for Teleflex in come quarters. Over the last five years, earnings grew by an average of 13% per year, while the comparable forward-looking average is 4 percentage points lower.
3. Balance sheet. Looking at Teleflex’s balance sheet, there has been a clear expansion in long-term debt, which tallied $850 million in 2016 but expanded to $2.16 billion last year. That brings the company’s total liabilities to $3.75 billion.
The company’s R&D expenses are also moving up quickly. In 2017, R&D spending grew far faster than revenue, jumping 44% year-over-year. Looking at the glass half full, it shows management isn’t simply sitting still. Looking half empty, a weak balance sheet isn’t what you want when growth could be cooling.
4. New management. Last year, Teleflex CEO Benson Smith retired and was replaced by Liam Kelly, former President and COO. This isn’t a huge change — it wasn’t fueled by controversy and the new leader is from within and thus likely following the same blueprint as his predecessor, but it’s still worth being aware of.
5. Optimistic analysts. The average price target from analysts is $292, 9% higher than the current level around $268 and also higher than the stock’s peak before the recent decline. This figure suggests that, even if Teleflex’s overall growth is cooling, there could be some quick money to make thanks to the recent dip in shares.
In all, I think Teleflex’s run is far from over — especially if we consider the recent decline a reset of expectations. With two acquisitions being worked in and a lot of optimism from Wall Street, I think the company can very easily regain those losses and then some. Put another way, the company doesn’t have to be stellar or even at its best for investors to pocket some gains– and that’s a pretty good place to be.
As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.