Haemonetics Stays Neutral - Analyst Blog

Recently, we reiterated our Neutral recommendation on Haemonetics Corporation (HAE) with a target price of $67.00.

Haemonetics reported adjusted EPS of 80 cents in the second quarter of fiscal 2011, surpassing the Zacks Consensus Estimate by 4 cents. The adjusted EPS was 16% higher than the year-ago quarter.

The company reported revenues of $166.8 million, up 6% compared with the year-ago period. However, revenues were lower than the Zacks Consensus Estimate of $173 million. At constant exchange rates (CER), revenue was up 7% annually.

Haemonetics earns about 82% of its revenues from the sale of disposables – plasma disposables, blood bank disposables and hospital disposables. Barring blood bank disposables, which recorded a year-over-year sales increase of 4.7% reaching $51.0 million, plasma and hospital disposables declined 4.9% ($56.5 million) and 0.4% ($28.9 million), respectively.

The continuous decline in plasma disposables is highly disappointing, especially after considering Haemonetics' expectation of low single-digit growth. This was primarily due to fluctuations in its customers' business volume with some larger ones falling short of their collection goals.

To worsen the situation, some of the smaller customers witnessed significant decline in plasma demand and a large customer was impacted by regulatory action. Despite these factors, Haemonetics expects to record annualized growth with a rebound in the plasma business.

Haemonetics' web based blood management portal, IMPACT Online, has witnessed greater acceptance among customers. During the last reported quarter, 28 new accounts (24 in the first quarter) entered the program taking the total number of IMPACT accounts to 118, compared with the full year target of 175.

The 118 IMPACT customers comprised 86 North American hospital accounts, 16 North American blood center accounts, and 16 European accounts. The expansion into European markets is all the more significant since the company had begun fiscal 2011 without any account outside the US. IMPACT was launched in Europe at the beginning of the first quarter.

Low global penetration and demand outstripping supply provides a positive long-term thesis for investing in the blood processing and supply chain management industry. Acquisitions have played a major part in evolution of Haemonetics.

A stable cash balance coupled with strong free cash flow generation has enabled the company to look for suitable acquisitions, which should further drive its top line.