Merit Medical Systems (MMSI)

Medical device company Merit Medical Systems (NASDAQ:MMSI) reported Q1 CY2025 results exceeding the market’s revenue expectations, with sales up 9.8% year on year to $355.4 million. The company expects the full year’s revenue to be around $1.48 billion, close to analysts’ estimates. Its non-GAAP profit of $0.86 per share was 14.8% above analysts’ consensus estimates.

Company Overview

Founded in 1987 and now offering over 1,700 patented products across global markets, Merit Medical Systems (NASDAQ:MMSI) manufactures and markets specialized medical devices used in minimally invasive procedures for cardiology, radiology, oncology, critical care, and endoscopy.

The medical devices and supplies industry, particularly in the fields of cardiology, neurology, and vascular care, benefits from a business model that balances innovation with relatively predictable revenue streams. These companies focus on developing life-saving devices such as stents, pacemakers, neurostimulation implants, and vascular access tools, which address critical and often chronic conditions. The recurring need for these devices, coupled with growing global demand for advanced treatments, provides stability and opportunities for long-term growth. However, the industry faces hurdles such as high research and development costs, rigorous regulatory approval processes, and reliance on reimbursement from healthcare systems, which can exert downward pressure on pricing. Looking ahead, the industry is positioned to benefit from tailwinds such as aging populations (which tend to have higher rates of disease) and technological advancements like minimally invasive procedures and connected devices that improve patient monitoring and outcomes. Innovations in robotic-assisted surgery and AI-driven diagnostics are also expected to accelerate adoption and expand treatment capabilities. However, potential headwinds include pricing pressures stemming from value-based care models and continued complexity changing from navigating regulatory frameworks that may prioritize further lowering healthcare costs.

Merit Medical Systems competes with several large medical device companies across its product categories, including Teleflex, Cook Medical, Medtronic, Boston Scientific, and Becton, Dickinson and Company in the peripheral and cardiac intervention markets. In its spine business, key competitors include Medtronic, Stryker Corporation, and Johnson & Johnson, while its endoscopy products compete with offerings from Getinge AB, Boston Scientific, Cook Medical, and Olympus Corporation.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With just $1.39 billion in revenue over the past 12 months, Merit Medical Systems is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Merit Medical Systems grew its sales at a mediocre 6.8% compounded annual growth rate. This fell short of our benchmark for the healthcare sector and is a rough starting point for our analysis.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Merit Medical Systems’s annualized revenue growth of 8.8% over the last two years is above its five-year trend, suggesting some bright spots.

We can better understand the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Merit Medical Systems’s organic revenue averaged 6.8% year-on-year growth. Because this number is lower than its normal revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline results.

This quarter, Merit Medical Systems reported year-on-year revenue growth of 9.8%, and its $355.4 million of revenue exceeded Wall Street’s estimates by 0.8%.

Looking ahead, sell-side analysts expect revenue to grow 8.1% over the next 12 months, similar to its two-year rate. This projection is admirable and suggests the market sees success for its products and services.

Merit Medical Systems was profitable over the last five years but held back by its large cost base. Its average operating margin of 7.9% was weak for a healthcare business.

On the plus side, Merit Medical Systems’s operating margin rose by 10.4 percentage points over the last five years, as its sales growth gave it operating leverage. Zooming in on its more recent performance, we can see the company’s trajectory is intact as its margin has also increased by 3.2 percentage points on a two-year basis.

This quarter, Merit Medical Systems generated an operating profit margin of 11.5%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Merit Medical Systems’s EPS grew at an astounding 19.2% compounded annual growth rate over the last five years, higher than its 6.8% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Merit Medical Systems’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Merit Medical Systems’s operating margin was flat this quarter but expanded by 10.4 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q1, Merit Medical Systems reported EPS at $0.86, up from $0.75 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Merit Medical Systems’s full-year EPS of $3.57 to grow 4.9%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Merit Medical Systems has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 10.3% over the last five years, better than the broader healthcare sector. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

Taking a step back, we can see that Merit Medical Systems’s margin was unchanged during that time, showing its long-term free cash flow profile is stable.

Merit Medical Systems’s free cash flow clocked in at $19.51 million in Q1, equivalent to a 5.5% margin. The company’s cash profitability regressed as it was 2.1 percentage points lower than in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Merit Medical Systems historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 3.9%, lower than the typical cost of capital (how much it costs to raise money) for healthcare companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Merit Medical Systems’s ROIC has increased over the last few years. This is a good sign, and we hope the company can continue improving.

Merit Medical Systems reported $395.5 million of cash and $817.7 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $321.5 million of EBITDA over the last 12 months, we view Merit Medical Systems’s 1.3× net-debt-to-EBITDA ratio as safe. We also see its $1.44 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

This was a bit of a messy quarter. On one hand, Merit Medical Systems beat analysts’ organic revenue and EPS expectations this quarter. On the other hand, its full-year EPS guidance was lowered and missed significantly. Zooming out, we think this was a mixed quarter featuring some areas of strength but also some blemishes. The stock remained flat at $94.60 immediately following the results.

Updated: May 22, 2025 at 11:44 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Merit Medical Systems.

Merit Medical Systems isn’t a terrible business, but it isn’t one of our picks. For starters, its revenue growth was mediocre over the last five years. And while its astounding EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its subscale operations give it fewer distribution channels than its larger rivals. On top of that, its mediocre ROIC lags the market and is a headwind for its stock price.

Merit Medical Systems’s P/E ratio based on the next 12 months is 25.4x. This multiple tells us a lot of good news is priced in - we think there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $108.18 on the company (compared to the current share price of $96.99).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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