Morningstar | Cantel Reports a Mixed Fiscal Third Quarter, but We Don't Expect a Change to Our FVE
Narrow-moat Cantel Medical posted a mixed quarter, but overall results trended in line with our expectations. We intend to maintain our $86 per share fair value estimate, placing shares in 4-star territory. However, with a shifting management team and ongoing portfolio review, we'd highlight our high uncertainty rating for prospective investors.While overall revenue and earnings came in consistent with our expectations, outperformance in both the medical and dental segments overcame much weaker than projected results in the firm's water purification business. Organic growth of 12.2% in the medical segment has held up well versus the softer results reported in the latter half of fiscal 2018. Management suggested double-digit growth out of this business over the long term is achievable, helping to support our longer-term forecasts. The life sciences segment posted an organic decline of roughly 17.6% year over year. This was due to ongoing weakness in the firm's dialysis customer channel, although management sees a return to growth in the second half of fiscal 2020. Supporting this view is a new multiyear agreement entered into with one main customer and ongoing discussions with the other leading services company in the market. Despite the worst likely behind the firm, management intends to finish its strategic portfolio review ahead of its fiscal fourth-quarter results. From the sound of it, we wouldn't be surprised to see some action taken relative to its medical water franchise, as this has been the primary detractor from performance over the last several quarters.
Concurrent with the CEO transition announced a few months ago, the executive team has seen some changes over the last several weeks, although many of the new leaders have come internally. Of note, the firm's CFO, Peter Clifford, is transitioning into a new COO role, and Shaun Blakeman is returning to Cantel following a short stint at Medtronic to lead the finance organization.
Cantel Medical is a provider of infection prevention products and services in the healthcare market. The company has four segments: Medical, which designs, develops, manufactures, sells and installs products and services comprising a circle of infection prevention solutions; Life Sciences, which designs, develops, manufactures, sells, and installs water purification systems; Dental, which designs, manufactures, sells, supplies and distributes infection prevention healthcare products; and Dialysis, which designs, develops, manufactures, sells and services reprocessing systems and sterilants for dialyzers, as well as dialysate concentrates and supplies utilized for renal dialysis
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