Piper Jaffray Initiates Coverage On Merit Medical Systems

Piper Jaffray is initiating coverage of Merit Medical Systems MMSI with an Overweight rating and a 12-month price target of $20 based on MMSI trading at ~20x our C11 EPS estimate of $0.98. Merit Medical manufactures a broad array of complementary medical devices used in interventional surgical procedures. In recent years, Merit has undertaken several acquisitions to broaden its product portfolio to include more differentiated, higher margin devices. Piper expects the favorable mix shift will result in improved operating margins, which it thinks will translate into an expansion in the PE multiple. Merit recently closed its acquisition of BioSphere Medical for ~$86MM, net of cash. The acquisition immediately provides Merit with a leadership position in the uterine fibroid embolization market. While Merit will still have to overcome challenges to patient referrals that characterize the underlying market, the economics of the transaction make it immediately accretive to earnings. Piper's price target of $20 is based on ~20x the C11 EPS estimate, a slight premium to the company's 5-year historical average forward P/E of 18.6x. Given the expected improvements in operating margins and profitability, we think multiple expansion is warranted. Longer term, we think there's further upside to our target multiple as op margins continue to improve. MMSI closed Tuesday at $15.12