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RVB's Market Musings

What began here as an avenue to interact and learn has far exceeded those goals.

If you are a prospective employer, please consider this site a place where you can see my passion for investing...

Tuesday, February 20, 2007

Haemonetics (HAE) making software push

Long ago, I mentioned that I would write about a small-cap blood medical device company named Haemonetics (HAE). I did - you can find a link to my report on the right hand side of this page. Without getting into too much detail (there is plenty in my full research report), I believe the company is well-positioned for growth along with higher margins in the future. Conservatively financed, the company has $7.50 per share in cash on the balance sheet. When I wrote the report, the stock traded at $45 and now trades at $47.25, not quite the bargain it was. Nonetheless, the company has a very strong competitive foothold on this market and I still believe strongly in my investment thesis (after all, I do personally own shares).

Recently, the company has made it very clear that it is serious about its software business by buying IDM Medical Software. This software essentially provides data management capabilities for blood centers. Already growing around 20% this year, HAE's software business is beginning to become a significant revenue contributor to the company. I will admit that I do not yet understand what this means for HAE. I mean, how well can this company, whose core competency has historically been design and assembly (manufacturing) of its devices, run a software company? Clearly, the synergies here are the ability to cross-market the software along with the hardware. But, there is some integration risk now embedded into the business, albeit the risk is still small at this time. IDM is a one-location company with only $6M in revenues. Furthermore, the existing 5D software acquisition appears to be going very well.

The stock is niether a true value stock, nor a high-growth stock. In fact, it is not beating earnings estimates, nor is it a momentum mover. All of this probably explains why it has moved very little in the past year. Yet, something here (read: new product pipeline & cost cutting opportunities) still leads me to believe that the company's future earnings potential is still very attractive. (In addition to me owning shares personally, we do own the shares in ASAP, as well)


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