Spent some time reading through their S10, investor presentation and Q10. Trying to understand the competitive environment around diabetes care.
I don't buy that the company is set up for growth. Their revenues have grown historically at 3-4% other than COVID barely beating out inflation. Even the investor presentation seems to indicate that the market for injection based devices is expected to be flat over the coming 5 years.
No growth in the core business isn't the end of the world. I don't think your valuation really takes it into account but it does mean I'd like to see a very large margin of safety based on TTM performance.
My biggest worry is how their cashflows will actually be used. They seem to want to do bolt on acquisitions and research. Based on my reading the diabetes treatment business is competitive with all big pharma players involved to some degree. There are a large number of new treatments in development. I don't have a lot of confidence that if EMBC invests their cash flows in acquisitions and research it will provide a good ROE.
The patch pump is interesting and as you noted. There is a pure play in the space TNDM. Which gives you an idea of potential upside if they are successful. But it's hard to known if and when they'll actually be able to start selling their pumps.
It also worries me that CEO and CFO are both external hires from outside BDX. The overall board also owns almost no shares as you pointed out.
For now I think this is a stock I put on my back burner and keep reviewing to see if I can become more comfortable with the plan moving forward. Thanks again for the interesting article!
Interesting write up. The baseline valuation look good on the surface given the quality of the business. Along with the spin dynamics it's pretty interesting.
Wonder what you think about the managements plan for reinvestment? Are you worried about management wasting the businesses cashflows?
It’s all fine until a disruptor comes along. Oramed Pharmaceuticals ($ORMP) is in Phase 3 trials of an insulin pill. Safer than pen injections, no threat of low blood sugar since the insulin gets metabolized in the liver.
Spent some time reading through their S10, investor presentation and Q10. Trying to understand the competitive environment around diabetes care.
I don't buy that the company is set up for growth. Their revenues have grown historically at 3-4% other than COVID barely beating out inflation. Even the investor presentation seems to indicate that the market for injection based devices is expected to be flat over the coming 5 years.
No growth in the core business isn't the end of the world. I don't think your valuation really takes it into account but it does mean I'd like to see a very large margin of safety based on TTM performance.
My biggest worry is how their cashflows will actually be used. They seem to want to do bolt on acquisitions and research. Based on my reading the diabetes treatment business is competitive with all big pharma players involved to some degree. There are a large number of new treatments in development. I don't have a lot of confidence that if EMBC invests their cash flows in acquisitions and research it will provide a good ROE.
The patch pump is interesting and as you noted. There is a pure play in the space TNDM. Which gives you an idea of potential upside if they are successful. But it's hard to known if and when they'll actually be able to start selling their pumps.
It also worries me that CEO and CFO are both external hires from outside BDX. The overall board also owns almost no shares as you pointed out.
For now I think this is a stock I put on my back burner and keep reviewing to see if I can become more comfortable with the plan moving forward. Thanks again for the interesting article!
Interesting write up. The baseline valuation look good on the surface given the quality of the business. Along with the spin dynamics it's pretty interesting.
Wonder what you think about the managements plan for reinvestment? Are you worried about management wasting the businesses cashflows?
I'll have to dig in some more.
From conangreer18 on Reddit.
It’s all fine until a disruptor comes along. Oramed Pharmaceuticals ($ORMP) is in Phase 3 trials of an insulin pill. Safer than pen injections, no threat of low blood sugar since the insulin gets metabolized in the liver.