Analyst Is Bullish On Masimo Despite Proxy Overhang Concerns - Here's Why

Wells Fargo initiated coverage on Masimo Corporation MASI with an Equal Weight rating and a price target of $173.

The analyst says it is optimistic about the Healthcare business and sees potential upside from new Consumer Health products in 2024 and beyond. Still, the proxy overhang keeps us on the sidelines.

The target price is based on 32.0x Wells Fargo 2024E EPS of $5.40, compared to the one- and three-year averages of 32.5x and 48.3x, respectively. 

It says the multiple is appropriate given the upside potential from new product launches, resilience, and continued momentum of MASI's Healthcare business segment. 

The analyst assumes that the non-Healthcare business is growing steadily for now. 

Key downside risks include overhang from the proxy contest, which could result in a shift in overall strategy and management distraction, and litigation risk from Apple Inc AAPL

In June, Politan Capital Management nominees were elected to the Masimo board.

Politan owns a 9% stake in Masimo. Politan Capital signaled interest in joining the board last year. 

Needham says the move could result in MASI separating the Sound United business. The analyst says that a sale or spin-off of Sound United would be a catalyst that would drive MASI's multiple and share price higher despite some modest EPS dilution. 

The analyst says the company could continue to pursue its consumer healthcare strategy without Sound United.

Price Action: MASI shares are up 0.32% at $159.12 on the last check Monday.