A Mostly Clean Quarter Drives A Better Valuation For AngioDynamics

At least some of the sharp decline in AngioDynamics (NASDAQ:ANGO) after its disappointing fiscal first quarter report in October of 2022 could be tied to fears that there was another shoe to drop, and likewise, the solid rebound in the shares on basically in-line fiscal second quarter results likely has at least something to do with relief that there were no similar surprises this time around. With that, the shares are up a strong 20% since my last update.

It doesn't take particularly demanding assumptions to get to a $20-plus fair value for AngioDynamics (35%-plus upside from here), and there are legitimate growth opportunities here. There are still risks, though, including a single-digit revenue growth rate that falls short of what the Street often demands of smaller med-tech names and a history of inconsistent execution on once-promising opportunities in a range of markets. In my last article, I acknowledged that it was likely futile to downgrade when the damage had already been done; while I do still see upside here (potentially meaningful upside), another quarter of in-line or better results would be welcome.

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A Mostly Clean Quarter Drives A Better Valuation For AngioDynamics

AngioDynamics Now Finds Itself Deep In The Street's Doghouse

In terms of investor sentiment, it’s basically back to square one for AngioDynamics (NASDAQ:ANGO) after a fiscal first quarter where the reported numbers weren’t quite that awful, but where management commentary on several subjects cast a pall over the company’s near-term prospects.

The shares are down more than a third since my last update on the company, lagging Cardiovascular Systems (CSII) and Inari (NARI) by a wide margin, and lagging Penumbra (PEN) by an exceptionally large margin. It’s difficult to recommend the shares here, as value stories in small-cap med-tech don’t often work out well and many of the issues pressuring sentiment won’t resolve quickly. I do think today’s price undervalues the business as a going concern, but I don’t see a high likelihood of M&A interest and the company’s combination of sub-10% revenue growth and single-digit adjusted EBITDA margin is far from compelling.

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AngioDynamics Now Finds Itself Deep In The Street's Doghouse

AngioDynamics: Growth Is Encouraging, But Margins Still A Work In Progress

It’s not exactly “business as usual” yet for the healthcare sector, but procedure counts have continued to recover as the pandemic pressures ease, with recoveries in elective procedures particularly notable. Unfortunately, while this recovery has been well-anticipated by the market, there is still evidence that margin pressures may be weighing on the sector more than expected.

Specific to AngioDynamics (NASDAQ:ANGO), the company closed the fiscal year on a strong note with respect to revenue growth, but margins remain challenging and seem likely to remain pressured into FY’23. There’s a lot to like about the company’s growth potential in areas like thrombectomy, atherectomy, and oncology, but it will take time to develop and nurture that growth, and near-term margin pressures are likely to limit multiple expansion unless/until the company can exceed revenue growth expectations by a more meaningful extent.

 

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AngioDynamics: Growth Is Encouraging, But Margins Still A Work In Progress

AngioDynamics - Progress Despite Margin And Pandemic Challenges

 

Between resurgent hospitalizations tied to the COVID-19 pandemic and higher costs/lower efficiency in the manufacturing and shipping operations, the last six months have been challenging for AngioDynamics (ANGO). This is reflected in the share price, which has declined about 16% since my last update, underperforming the S&P 500, but not doing all that badly compared to other smaller med-techs in similar markets (including names like Cardiovascular Systems (CSII), Inari (NARI), and Penumbra (PEN)).

At this point AngioDynamics remains a “show me story”; management has to show that it can generate meaningful revenue growth from its “Med Tech” portfolio, while also generating reasonable cash flows (or sale proceeds) from slow-growing legacy businesses making up about 75% of the revenue base.

The weaker near-term margin outlook doesn’t help, and AngioDynamics risks being stuck in an investor “no man’s land” between inadequate revenue growth to get the interest of “emerging/established growth” investors and inadequate margins for more value/FCF-oriented investors. That said, I do think the valuation is interesting for more risk-oriented investors.

 

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AngioDynamics - Progress Despite Margin And Pandemic Challenges

AngioDynamics: Focusing On Three Credible Growth Drivers And Targeting Growth Acceleration

 

After enjoying a strong run from the fall of 2020 through to the spring of this year, AngioDynamics (ANGO) shares have flattened out. I would attribute at least some of this to a more cautious market towards smaller med-tech, but also some level of “wait and see” on the part of investors regarding management’s ability to drive a sustained improvement in the business on the back of its thrombectomy, atherectomy, and oncology electroporation technologies.

AngioDynamics’ spotty execution history and higher investor expectations were significant factors in my neutral stance on AngioDynamics back in April, and the shares haven’t done much since then. I liked the better-than-expected fiscal fourth quarter results and the improved guidance for fiscal 2022, and I still see a path to a fair value close to $30, but this remains a riskier-than-average execution-driven story with not all that much following on the Street.

 

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AngioDynamics: Focusing On Three Credible Growth Drivers And Targeting Growth Acceleration

Real Change At AngioDynamics, Or Just Another Reshuffling Of A Lackluster Deck?

AngioDynamics (ANGO) has been a crappy stock over the long term, with a 10-year annualized return of only a bit more than 5% and a 15-year annualized return that is even worse. Over that same period, Medtronic (MDT) would have earned you about 12%/year, Becton, Dickinson (BDX) 15%, and Teleflex (TFX) close to 23%. And lest you think this is a case of Wall Street losing the thread, annualized revenue growth at AngioDynamics has been just 6% over the past decade – well below what the Street typically wants from smaller med-tech names.

Is AngioDynamics changing for the better? Management disposed of its lower-margin, low-to-no-growth NAMIC fluid management business at a solid price and wants to reinvest in areas with better growth potential like oncology and thrombus management, and U.S. clinical trials of NanoKnife are getting underway. All of that is fine, and NanoKnife could still represent some meaningful upside, but it’s tough for me to get excited about a med-tech business with core growth in the mid-single-digits.

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Real Change At AngioDynamics, Or Just Another Reshuffling Of A Lackluster Deck?

AngioDynamics Continuing To Slowly Shift Its Mix Towards Growth

Following AngioDynamics (ANGO) may be a little like watching paint dry given the low growth rate (often a severe valuation-limiting issue in med-tech), but the stock has at least outperformed the average med-tech stock since my last write-up in July and has outperformed more significantly over the past 12 months (over 25% versus around 10%).

AngioDynamics remains a hurry-up-and-wait story, with significant potential in the NanoKnife business. Oncology in general remains a worthwhile opportunity for AngioDynamics, and I won’t be surprised to see the company make further portfolio moves, perhaps including the sale of under-performing low-potential segments. Execution has been hit-or-miss here for a long time, though, and while the NanoKnife has meaningful upside on positive trial outcomes, a negative trial result would seriously undermine the value. With around 10% upside in my base case and closer to 20% upside in my bull case, I’d consider this a borderline buy today.

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AngioDynamics Continuing To Slowly Shift Its Mix Towards Growth

AngioDynamics Slowly Building Confidence In Its Turnaround

The current CEO of AngioDynamics (ANGO) has referred to his restructuring plan at times as “fixing the plane while its flying”, and that’s not a bad description. Years of questionable management choices and changes in direction left AngioDynamics with a dated, not particularly competitive, line-up of products that have long consigned the company to weak growth and feeble margins, but management’s restructuring plans look sensible and achievable.

Investing in AngioDynamics means taking some measure of a leap of faith that those restructuring efforts will lead to actual organic revenue growth – something the company has lacked for the better part of a decade – and improved margin leverage. The valuation would seem to suggest that the market is still skeptical that AngioDynamics can ever achieve meaningful growth, leaving some upside for intrepid investors if management can in fact deliver.

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AngioDynamics Slowly Building Confidence In Its Turnaround

Seeking Alpha: AngioDynamics Delivering The Growth, Margins Next?

When it comes to publicly-traded companies, growth fixes a lot of issues and AngioDynamics's (ANGO) return to revenue growth has seen the stock outperform nicely over the past year. There are certainly considerable challenges left for AngioDynamics management, including taking share from Bard (BCR) and Teleflex (TFX) in vascular access and maximizing the value of newer offerings like BioFlo and AngioVac. Efforts to restructure the business and generate better margins are likewise a big part of the bull thesis.

These shares are still in that grey area of "strong hold" for me. The shares don't appear all that cheap by discounted cash flow, even giving management the benefit of the doubt on margins, but the EV/revenue multiple is quite low and this is often the number that institutional investors follow. So long as the company can post better growth numbers and keep the margin improvement story alive, I would think retesting the high teens is a credible expectation.

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AngioDynamics Delivering The Growth, Margins Next?

Seeking Alpha: For Teleflex, Small Things Add Up

If companies like Intuitive Surgical and Heartware live on the "gee whiz" end of the med-tech spectrum, Teleflex (TFX) is on the other end. That is not to say that there isn't meaningful R&D and engineering going into the company's products, but categories like central venous catheters, PICCs, Foley catheters, and endotracheal tubes just don't tend to get growth-oriented med-tech investors all that excited.

Even so, Teleflex has a lot going for it. The company has been a very willing acquirer and increased investments in R&D should lead the way to more innovative new products and market share growth. In the meantime, management is focused on operating improvements that should support double-digit earnings growth. While Teleflex does not look all that cheap on a discounted cash flow basis, the company's above-average growth prospects could maintain healthy valuation multiples.

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For Teleflex, Small Things Add Up

Seeking Alpha: The Story Is Working For AngioDynamics

Investors who had been waiting patiently for AngioDynamics (ANGO) to get sentiment turned around should be happy with the better-than-50% return over the past year. The company still has work to do in taking share back from large rivals like Bard (BCR), but I think the company is on the right track. It also doesn't hurt that the company is getting more serious about restructuring operations with an eye towards better margins.

Valuation is a trickier question. On a cash flow basis, it's hard to get there even if you assume Bard or Covidien-like (COV) free cash flow margins. The good news is that med-tech stocks are seldom ever limited by DCF-based valuations and if you assign what would otherwise be a low med-tech multiple of 2x next year's sales, the stock would still be less than 10% undervalued.

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The Story Is Working For AngioDynamics

Seeking Alpha: AngioDynamics Stronger Than It Looks, But Not So Cheap

When AngioDynamics (ANGO) reported last night, it brought a challenging fiscal year to close for this small med-tech company. A combination of weak job growth, higher co-pays/deductibles and uncertainties ahead of the full implementation of the Affordable Care Act have impacted procedure counts, while the company tried to digest a sizable acquisition and restructure its sales approach. All told, the company's performance has looked pretty soft, with rivals likely gaining share in many markets.

Going over the numbers and listening to management's call, though, suggests that the business may have already started to turn the corner. This is still a "show me" story in that regard, and management needs to show that it can regain momentum in the face of larger rivals like Covidien (COV), Edwards (EW) and Bard (BCR). Investors have already started coming back around to this story, as the shares are up almost 30% from their late April lows, and I'm not sure the company can grow fast enough to make today's price a bargain.

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AngioDynamics Stronger Than It Looks, But Not So Cheap

Investopedia: AngioDynamics Still Struggling To Get Back On Track

Throughout what has proven to be a difficult time for small-cap medical device company AngioDynamics (Nasdaq:ANGO), I've been optimistic about the company's long-term potential. While businesses in vascular access, dialysis, and fluid management are not high-growth areas of medical technology, I thought the company's focus on product development would lead to better revenue and margin leverage than the Street seemed to be expecting.

So far that has been a bad call. While products like NanoKnife, BioFlo, and AngioVac do still hold the potential to drive long-term growth rates in excess of the industry norms, sales execution and market shares need to improve. Likewise, investors should not underestimate the potential risk of rejuvenated large competitors like Covidien (NYSE:COV) and CR Bard (NYSE:BCR).

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Seeking Alpha: TAVR Is Real (And Maybe Spectacular), But Edwards Lifesciences Isn't A Bargain

Once again I seem to have underestimated how Wall Street's love of a good story can overpower and outweigh the likely long-term economic returns from that story. In the case of Edwards Lifesciences (EW), I have never doubted that transcatheter aortic valve replacement (TAVR) (also called "... valve implantation" or TAVI) was going to be successful, nor that Edwards' Sapien would be a major player.

What I doubted was whether Wall Street would keep pumping up the valuation it was willing to pay. With Edwards being one of the relatively few double-digit organic growth stories in med-tech, the stock is up about 30% since my last skeptical piece - not all that much better than other med-tech names like Medtronic (MDT) or Boston Scientific (BSX) in what has been a strong med-tech market, but 30% is 30%. Even still, while I have no problem forecasting double-digit free cash flow growth for Edwards, I still don't see a compelling valuation here.

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TAVR Is Real (And Maybe Spectacular), But Edwards Lifesciences Isn't A Bargain

Seeking Alpha: AngioDynamics Stuck In That Difficult Grey Area

These are frustrating days to be a med-tech investor. Companies with high-quality products and growth are generally trading at pretty extreme multiples, while the low-multiple companies tend to be those with some pretty serious operational/competitive issues. AngioDynamics (ANGO) seems to be somewhere in the middle - the company's underlying business is muddling along through some challenging times in its addressed markets, while the valuation isn't quite in clear value range.

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AngioDynamics Stuck In That Difficult Grey Area

Seeking Alpha: ICU Medical's Growth Needs Some Intensive Care

ICU Medical (ICUI) is a company likely to toil in near-obscurity for the foreseeable future. The company does most of what it does exceptionally well, but it strikes many as a dull business. While that doesn't seem to be a problem at companies like Bard (BCR) or Becton Dickinson (BDX), ICU Medical is relatively illiquid, under-followed, and still fairly volatile when it comes to earnings performance. All of that said, this is still a company that belongs on the watchlists of value-oriented med-tech investors.

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ICU Medical's Growth Needs Some Intensive Care

Seeking Alpha: AngioDynamics Still A "Hurry Up And Wait" Story

Small-cap med-tech stock AngioDynamics (ANGO) continues to offer the sort of patience-testing value opportunity that drives many investors away in frustration. That said, a rebound in the company's laser-based varicose vein treatment and synergies from the Navilyst deal do give patient investors a little encouragement for the short-term.

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AngioDynamics Still A "Hurry Up And Wait" Story

Seeking Alpha: ICU Medical Offers A Tricky Trade At These Levels

ICU Medical (ICUI) is an uncommonly squirrely stock. Although infusion therapy and critical care products are not exactly missionary sales, ICU Medical's stock as been uncommonly volatile due in large part to unpredictable sales trends. What that means for investors is that they have to fight their instincts and get bold during the tough quarters and get a little cautious when the stock is doing especially well.

Reasonable Performance For Q1
ICU Medical's performance in the first quarter was solid, albeit not spectacular. Overall revenue rose nearly 6% and slightly beat the average sell-side guess. Infusion therapy sales were pretty solid (up nearly 10%), and oncology continues to grow nicely (up 30%), but critical care is still the problem child (down over 14%).

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ICU Medical Offers A Tricky Trade At These Levels

Seeking Alpha: AngioDynamics Quietly Getting Interesting

Although this year is looking a little better than last for med-tech stocks, it's still largely a revenue growth-driven phenomenon. To that end, AngioDynamics' (ANGO) unimpressive growth has pushed it towards being an afterthought for many investors. While this story is going to take time to develop, patient investors might like what they see here in terms of value for money.

No Fast Turnaround In Q3
AngioDynamics has a fairly stable business, which is fine when times are good but not so helpful when procedure volumes are weak. Reported revenue dropped nearly 6% this past quarter, as a nearly 10% decline in U.S. sales offset good growth in its small overseas business.

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AngioDynamics Quietly Getting Interesting

Seeking Alpha: Challenging Targets Could Pay Off For Ziopharm Oncology

Give the management at Ziopharm Oncology (ZIOP) credit - they're not looking to be a me-too player in easy drug categories. Although Ziopharm isn't initially targeting oncology markets with huge top-line sales potential, offering decidedly better mousetraps could nevertheless translate into very solid market shares and attractive partnership economics down the line.

Old School In A New Way
There's no question that there has been a lot of excitement around new targeted approaches to cancer. Whether it's monoclonal antibodies like Amgen's (AMGN) Vectibix or Roche's (RHHBY.PK) Avastin, antibody-drug conjugates, or cancer vaccines, dozens of experimental drugs have been advanced on the basis of the sometimes severe systemic toxicity that often goes with chemotherapy.

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Challenging Targets Could Pay Off For Ziopharm Oncology