Pumping Up Profits with InfuSystem Holdings, Inc. (INFU)


Executive Lounge, Penny Pick Elite / Wednesday, September 10th, 2014

With so many momentum stocks ripping up to massive, though usually short-lived gains recently, it’s easy to overlook some bread and butter issues that are breaking through to new 52-week tops purely on fundamentals. One of those is InfuSystem Holdings, Inc. (INFU), which finally penetrated resistance at the $3 mark on Wednesday, and appears poised to grind higher into potential breakout territory.

Founded in 2005, InfuSystem Holdings, Inc., through its subsidiaries, provides infusion pumps and related services in the United States and Canada. The company supplies electronic ambulatory infusion pumps and associated disposable kits to oncology clinics, infusion clinics, and hospital outpatient chemotherapy clinics for the treatment of various cancers, including colorectal cancer. It also sells, rents, and leases new and pre-owned pole mounted and ambulatory infusion pumps and provides biomedical certification, maintenance, and repair services for oncology practices, and others.

In addition, the company sells various primary and secondary tubing, cassettes, catheters, and other disposable items that are utilized with infusion pumps. Further, it offers pump management services for the pumps and associated disposable supply kits to approximately 1,800 oncology clinics. The company also delivers local and field-based customer support, as well as operates pump service and repair centers. As of December 31, 2013, it owned a fleet of approximately 20,000 new and used pole mounted and ambulatory pumps.

There are several things to like about INFU right now on a fundamental, forward-looking and technical trading basis. First, the bottom line:

In the company’s most recent Q2 earnings report, posted in August, net income weighed in at a healthy $900,000, an impressive boost from net income of $100,000 in the corresponding period from 2013. EPS came in at $0.04 per share, a 400% gain from breakeven in Q2 2013.

Revenues in the second quarter of 2014 were $16.4 million, up $1.7 million, or 12%, from $14.7 million in the second quarter of 2013. During the period, net revenues from rentals increased 9% while net revenues from product sales increased 51%. Revenue for the six-months ending June 30, 2014 was $33.6 million, a 14% increase over the same prior year period.

According to company management, the increase in revenues was primarily related to the addition of larger customers and increased penetration into existing customer accounts, both in sales and rentals. Here’s what the company’s CEO, Eric Steen, said in the earnings release:

“We are committed to running InfuSystem for the long-term as the professionally managed and profitable company it has become. Rentals to our oncology patients and to our home infusion partners are both at all-time high levels. Additionally, our sales of disposable products such as IV administration sets and catheter care kits continue to grow, providing additional recurring revenue.” The company has also expanded its electronic medical records connectivity capabilities—with Steen calling that process “a key tool to increase productivity.”

Furthermore, InfuSystem maintained its 2014 guidance of high single digit revenue growth and said it expects this rate to continue through 2015. And finally, management issued a bullish outlook related to a highly significant change in Medicare reimbursement policy. “Prior to the recent announcement by CMS, we planned for a future that included CMS reimbursement cuts in early 2016,” stated Mr. Steen. “We believe that this recent announcement could result in a delay in CMS cuts to our product category later than planned, resulting in a higher growth rate in future periods.”

As you can see from the chart below, this earnings announcement didn’t appear to do much in terms of currying favor with value-hungry market participants. Initially the share price got quick boost through the $2.70 level, then met some stout resistance at $2.90 and pulled back for almost a month at around $2.80. Follow-on trading volume was limited, and the stock returned to its characteristic minimal churn rate, which sat at an average of about 20,000 shares per session over the past few months.

infu

[mepr-rule id=”994″ ifallowed=”hide”][mepr-unauthorized-message][/mepr-rule]

[mepr-rule id=”204″ ifallowed=”show” description=”penny_pick_elite_members_only”]
At the beginning of this week, trading volume picked up slightly, with about 35,000 shares changing hands. Then a funny thing happened Wednesday. Buyers stepped up to the plate and pushed INFU to a fresh 52-week top of $3.20, before the issue pulled back midday to its previous 52-week high of $3.05, touched all the way back in February. Trading volume was more than 15x the recent average — always something you like to see when a stock is trying to crack through historic price resistance.

One of the things I like most about where INFU currently sits is that the stock is bumping against levels that it hasn’t seen for more than five-years. In theory, if buyers can continue to have their way with the issue, the potential for a blue-sky breakout is setting up.

There are two things to consider, however, before loading up the truck with INFU shares. First, this issue is the epitome of a “grinder” — moving slowly up and down well-defined channels over long time frames. Second, price breakouts are sometimes difficult to maintain on a short-term basis, especially with a stock like INFU, where long-suffering shareholders may see the most recent price move as a selling opportunity.
[/mepr-rule]

[mepr-rule id=”988″ ifallowed=”show” description=”executive_lounge_members_only”]
At the beginning of this week, trading volume picked up slightly, with about 35,000 shares changing hands. Then a funny thing happened Wednesday. Buyers stepped up to the plate and pushed INFU to a fresh 52-week top of $3.20, before the issue pulled back midday to its previous 52-week high of $3.05, touched all the way back in February. Trading volume was more than 15x the recent average — always something you like to see when a stock is trying to crack through historic price resistance.

One of the things I like most about where INFU currently sits is that the stock is bumping against levels that it hasn’t seen for more than five-years. In theory, if buyers can continue to have their way with the issue, the potential for a blue-sky breakout is setting up.

There are two things to consider, however, before loading up the truck with INFU shares. First, this issue is the epitome of a “grinder” — moving slowly up and down well-defined channels over long time frames. Second, price breakouts are sometimes difficult to maintain on a short-term basis, especially with a stock like INFU, where long-suffering shareholders may see the most recent price move as a selling opportunity.
[/mepr-rule]

That said, given all the factors mentioned above, I believe the marketplace will ultimately reward INFU with a higher valuation in the months ahead.

As always, trade this and all stocks with extreme caution.

Warren Gates, Senior Analyst, Normandy Research

Leave a Reply

Your email address will not be published. Required fields are marked *