My Own Analyst

MAKO - Initial Thoughts

Sales in line, guidance on placements and procedures unchanged...

Should rally, but back with more after call (4:30 EST)....

Why MAKO Slammed

There is an industry conference going on that ends tomorrow.  Apparently Blue Belt, which MAKO is suing (their former sales guy allegedly went there with stolen information), had a decent showing, raising fears that this recently approved by the FDA system could gain traction.  MAKO addressed this on the last call:

 

We’ve seen the importance of our superior technology, the importance of optics business, is a key element of our technology that really enables these surgeons to do the cutting, the soft tissue balancing aspects of our technology, and the fact that we have a platform in place, I think are the key features that allow us, and I think that this has allowed to head start, where we have a 156 systems, 23,000 procedures over 30 peer reviewed articles, and we have created a very robust infrastructure in place to kind of help and support and work out, what we think are the most important pieces of our technology. And finally, I would say Kim, we think that increased competition from our perspective, what it really does is, it expands the visibility of the importance of robotics in orthopedics.

MAKO

Posted this to Marketfy:

MAKO reported this afternoon.  This was a trade from 2/21 with a 3/7 expiration, put on at 11.20 with a target of 12.99 and a stop of 10.88 (10.92 was the low today).  For more details on the rationale for the trade, please refer to the prior blog post .  

The company had already provided two key metrics:  Procedures and system placements.  The sales were slightly below expectations, but this was due to deferred revenue from two international sales that will be recognized in 2013.  Consequently, EPS of -.13 was a little worse than the -.11 expected.  I don't believe that these "misses" are important, as the key drivers here are utilization, system stales and procedural growth.  

Guidance for 2013 was shared for the first time:

 

• Procedures of 13,500-14,500 (vs 10,204 in 2012)
• System sales  of 45-48 (vs 45 in 2012)
• Cash burn of $22-27mm (vs $28mm in 2012 and leaving $46mm cash at year-end 2013)

While I think that the "numbers" here are ok, and I appreciated the five operating priorities the CEO shared, which are mainly focused on getting less-productive customers to become more productive and doing a better job with brand new customers, the management team here isn't exactly inspiring confidence.  This will take results, not talk.  In the meantime, though, I think that the guidance provided is realistic enough that perhaps some shorts will cover.  As I think about one of the positives, it is that they now have 31 peer-reviewed, published research reports and 70 more in process.  It is undeniable that their robotic surgery is substantially more accu rate than unassisted knee surgeries.

In the after-hours, the stock has spiked up a bit and is now near 11.45, but that's a fool's game if you ask me, at least based on what I heard here.  We'll see what the big boys do in the morning...

 

Why MAKO is Falling

Wow, I should have been more patient, as I read about ISRG last night and it was slow to get hit so I figured no big deal.  A study came out suggesting that the robotic hysterectomy is more expensive without better outcomes than laparascopy.  I actually don't think this is really an issue for ISRG (where I am negative for other reasons), but I think it's bleeding through to MAKO, which is REALLY STUPID.    Hopefully the trade doesn't get stopped at 11.48.

LMNX Q4 Solid

I think that 2013 will be good for companies like LMNX, and I hope that includes LMNX!  The company is expensive on the surface but has unique technology and solid top-line growth.  My target assumes 5X sales, which really requires closer to 20% growth to entice people to pay that much (it's been closer to 15%) but keep in mind that there is a huge call option here on the BioThreat program to detect anthrax.  I don't think anyone is too focused there now.  

This quarter was nice, with a small beat on the top-line and a decent one on EPS.  There have been a lot of moving parts here, including a shift towards self-distribution for a portion of their molecular diagnostics business.  I think that is the main reason for the beat, which leaves me a little cautious on that front, but there are a lot of things going on, including a new test that was just approved for gastrointestinal disorders, where a rapid diagnosis is important.  The strong flu season has helped them too.

Long story short, no reason to fade necessarily, but this wasn't a breakout quarter.  I thought the guidance was decent - $225mm sales at the mid-point.  I may trim the stock if it approaches 20, but my target of 28.50 suggests that this remain a core holding.

MAKO

Piper Jaffray, a bull on the name, cut its target from 28 to 23 today.  I have cut my target slightly too - it's 22.50.  I didn't see their report.

I should point out an oversight - MAKO is now a "black 5", the only one on my watchlist.

I like MAKO...

 

MAKO Presentation

I listened to the MAKO presentation - no new info whatsoever.  The next catalyst is late Feb Q4 earnings release, but, after that, there is some data that will be available in March.  One of the things that stands out to me is the amount of data that supports their procedures already - this is key to convincing new doctors/hospitals to adopt.  I continue to view this is a somewhat speculative stock because they aren't yet profitable.  The good news is that they are growing rapidly in an underpenetrated market.  It seems like their solutions are good for everyone - patients, doctors and hospitals, without burdening the system with a lot of extra cost.  My batting average here is not as good as it was after the good entry and exit last year given a premature return, but I think that the stock still has a lot of potential.  Way too many shorts.  If you care to look at the slides or listen to the call, you can do so by visiting the JPM website.  There are many other presentations, some with slides:

 

http://jpmorgan.metameetings.com/webcasts/healthcare13/live.html

MAKOing Me Look Bad!

I haven't heard too much more out of the analysts.  Whoever was selling below 11 in size needs to go back to trading school!  We have a good low in now potentially rather than the quetionable double-bottom.  I am assuming that their body language at the JPM conference wasn't bad, as the stock has recovered most of the drop.  Again, while I will likely reduce my target somewhat, it won't be by more than 10%.  I have been using 8.5X projected sales.  I will likely drop it to 8 and use slightly lower projected 2013 sales.  So, I am thinking 26 to 23.5-24.  Maybe this is too aggressive - they sure need to have a decent Q1.

I am sorry I didn't have time this morning to share this, but here is the "oversold" levels:

• 10.5 -2.09
• 11  -1.88
• 11.5  -1.66
• 12 -1.44

MAKO Pre-Announces

MAKO, as expected, shared some data for Q4, suggesting 15 machines were sold and 2904 procedures.  The bullish Piper Jaffray analyst had suggested 16 and 3100 last week.  This compares to  2413 procedures in Q3 and 15 machines.  

The guidance last quarter was:

• Machines:  10-18
• Procedures:  2900-3300

So, not great, but not the disaster feared.  It looks like the stock is halted.  More later, but I think that this seems positive (no disaster).  

Why $MAKO Popped

Piper Jaffray reiterated its 28 target, citing increased utilization.  This was the issue that dogged them last quarter.  If that is behind and the equity raise is behind, hopefully good things ahead.  My target is 26.  Getting there takes only reasonable execution after two bad quarters on placements and one bad quarter on procedures.  On the latter, "bad" was actually just hot instead of smoking hot - they grew procedures at rates than other companies can only dream about.