Masimo stock broke out, touching an eight-month high Monday after the company said it could potentially separate its audio and consumer-facing business.
The consumer business includes the former Sound United, its Stork baby monitor and Freedom smartwatch and bands. Masimo will retain its professional health care and telehealth products, which include noninvasive monitoring products for patients in hospitals.
Needham analyst Mike Matson said the separation would be overall good for Masimo, though the company's earnings per share could take a hit. He assumes Masimo could snag about $730 million for the audio and consumer business — equal to last year's sales — and then use that cash to pay down debt.
"We estimate that it would reduce Masimo's annual interest expense by about $37 million," he said in a report. "It's unclear how profitable the consumer business is currently and to what degree the loss of any consumer business operating income would offset the interest expense savings."
On today's stock market, Masimo stock jumped 3.3% to 139.43. Shares broke out of a flat base with a buy point at 138.32, according to MarketSurge.com. Masimo stock hit its highest point since last July.
Could Masimo Stock Benefit From Separation?
Last year, Masimo's non-health care products brought in $772.6 million in sales. That narrowly beat expectations for $770.7 million, FactSet shows.
Needham's Matson notes that Sound United had annual sales of about $900 million at the time Masimo acquired it. Then, it had a 14% margin on EBITDA — or earnings before interest, taxes, depreciation and amortization — but that's likely contracted alongside sales.
"Masimo notes that the separation will improve the profitability of the health care business, but we don't interpret this to mean that the separation will necessarily be accretive to the combined companies' current earnings per share," he said.
He has a hold rating on Masimo stock.
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