ITGR - Integer Holdings Corp.

[musicgold]

Hi,

 

Integer Holdings (ITGR-US) is a contract manufacturer in the medical technology sector. See below for links to their investor presentation and news section. I am not sure if the negatives highlighted below justify the YTD decline of 60% in the stock price and a 40% discount to a DCF based fair value. Am I missing something big? How should I think about this?

 

Valuation:  Trades at a P/E of 7.3x based on the 2016 EPS  guidance of $2.60-2.75. Based on my longer term DCF model, it trades at a P/E of 11.6x and EV/EBITDA of 10x. My DCF model spits out a FV of $32.55 based on 5% decline in FCFE over the next 3 years, 3% steady growth after that, and terminal multiple of 16x. 

 

Positives:

1. With its recent, largest ever, acquisition, ITGR  became the largest medical device outsource (MDO) manufacturer in the world.

2. Generated positive free cash flow over the last 10 years, except 2015 when they made the large acquisition.

3. Integration of the recent acquisition going well and synergies achieved are better than expected.

4. No major debt maturities until 2021. Free cash flow is to be used primarily to reduce leverage from the current 6.5x  to below 3.5x over the “next couple of years”.

 

Negatives:

1. Reduced guidance for the last two quarters for various reasons: customers reducing inventory, changes in the end markets,  project delays, price reductions to secure long term contracts, and some exposure to the the oil market.

2. High leverage – the recent acquisition increased its Debt to Equity to 241%. Debt to EBITDA in the 6.5x range.

3. CFO is leaving by mid-February.

 

Investor Presentation

http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MzI1OTk0fENoaWxkSUQ9LTF8VHlwZT0z&t=1&cb=635924400054078625==

 

http://investor.greatbatch.com/Phoenix.zhtml?c=122233&p=irol-news