ICUI - Solid Second Quarter, But A Little Creepy

ICU Medical (Nasdaq: ICUI) was one of the first stocks I picked up to cover during my last go-around as a sell-side analyst. It is a stock I have paid attention to for years, and likely will continue to do so ... or at least as long as present management is in place. Given all that, I was not that surprised to see the company report solid second quarter results.

Revenue jumped 29% this quarter to $68.9 million. Now, here is an eerie/creepy/uncanny detail - I have not updated my model on ICUI since I left the sell side on March 1 of this year (so, about 5 months ago). And yet, my modeled revenue number for this quarter (back from February, the last time I updated it) was $68.4 million.

Anyways ...

The company's key CLAVE product group had a strong result, as did the custom tubing business. Critical care was not so strong on the top-line, but it looks as though ICUI did a good job of turning around the margin performance. Overall gross margin improved by almost 500bp, and getting the critical care business from Hospira (NYSE: HSP) - who treated this business like it was a plague carrier - should give ICUI a great deal more control over margins and inventories in the future.

International sales are growing a lot faster than domestic sales for ICUI, and overseas markets like Europe are a major unexploited opportunity. On top of that, the company's direct sales and domestic distributor efforts are paying off, as sales through these channels more than doubled again this quarter.

ICU Medical is a business that is far more volatile than it "should" be - due in no small part to the up/down large-scale ordering patterns of Hospira, one of its largest sales channels. The company is working hard to reduce Hospira's influence, though, and that should pay off in the future. In the meantime, I still wish that the company spent more on R&D - they really do need to add more products with double-digit growth prospects, and the have plenty of cash to spare for such efforts.

I have a fair value of about $42 per share on ICUI. That means I cannot say you should buy this stock today - 12% appreciation potential just does not cut it for a stock with this kind of volatility. It is a business and management that I really like, though, so it will probably always have a place on my watch list.