Company Profile (excerpt from Reuters): ABIOMED, Inc., incorporated on June 4, 1987, is a provider of temporary percutaneous mechanical circulatory support devices. The Company offers care to heart failure patients. The Company operates in the segment of the research, development and sale of medical devices to assist or replace the pumping function of the failing heart. The Company develops, manufactures and markets products that are designed to enable the heart to rest, heal and recover by improving blood flow to the coronary arteries and end-organs and/or temporarily performing the pumping function of the heart. The Company’s product portfolio includes the Impella 2.5, Impella CP, Impella RP, Impella LD, Impella 5.0 and AB5000. Its products are used in the cardiac catheterization lab (cath lab), by interventional cardiologists, the electrophysiology lab, the hybrid lab and in the heart surgery suite by heart surgeons.
Downloadable PDF version of this valuation:
ModernGraham Valuation of ABMD – February 2019
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass 6 out of the following 7 tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $15,717,581,534 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 6.76 | Pass | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Fail | ||
| 4. Dividend Record | Dividend Payments for 10 years prior | Fail | ||
| 5. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | -1053.75% | Fail | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 138.75 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 18.45 | Fail | |
| Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor. | ||||
| 1. Sufficiently Strong Financial Condition | Current Ratio > 1.5 | 6.76 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 0.00 | Pass | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Pass | ||
| 4. Dividend Record | Currently Pays Dividend | Fail | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Pass | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $2.51 |
| MG Growth Estimate | 15.00% |
| MG Value | $96.79 |
| Opinion | Overvalued |
| MG Grade | C- |
| MG Value based on 3% Growth | $36.45 |
| MG Value based on 0% Growth | $21.37 |
| Market Implied Growth Rate | 65.13% |
| Current Price | $348.83 |
| % of Intrinsic Value | 360.40% |
ABIOMED, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $0.99 in 2015 to an estimated $2.51 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 65.13% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into ABIOMED, Inc. revealed the company was trading above its Graham Number of $37.44. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 138.75, which was above the industry average of 51.18. Finally, the company was trading above its Net Current Asset Value (NCAV) of $11.62.
ABIOMED, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C-.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | $11.62 |
| Graham Number | $37.44 |
| PEmg | 138.75 |
| Current Ratio | 6.76 |
| PB Ratio | 18.45 |
| Current Dividend | $0.00 |
| Dividend Yield | 0.00% |
| Number of Consecutive Years of Dividend Growth | 0 |
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| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 12/1/2018 |
| Total Current Assets | $628,728,000 |
| Total Current Liabilities | $92,980,000 |
| Long-Term Debt | $0 |
| Total Assets | $957,116,000 |
| Intangible Assets | $48,776,000 |
| Total Liabilities | $105,586,000 |
| Shares Outstanding (Diluted Average) | 45,040,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $4.01 |
| Mar2018 | $2.45 |
| Mar2017 | $1.17 |
| Mar2016 | $0.85 |
| Mar2015 | $2.65 |
| Mar2014 | $0.18 |
| Mar2013 | $0.37 |
| Mar2012 | $0.04 |
| Mar2011 | -$0.32 |
| Mar2010 | -$0.52 |
| Mar2009 | -$0.91 |
| Mar2008 | -$1.26 |
| Mar2007 | -$1.03 |
| Mar2006 | -$1.15 |
| Mar2005 | -$0.11 |
| Mar2004 | -$0.45 |
| Mar2003 | -$0.87 |
| Mar2002 | -$1.02 |
| Mar2001 | -$0.94 |
| Mar2000 | -$0.60 |
| Mar1999 | -$0.39 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $2.51 |
| Mar2018 | $1.66 |
| Mar2017 | $1.20 |
| Mar2016 | $1.08 |
| Mar2015 | $0.99 |
| Mar2014 | $0.09 |
| Mar2013 | -$0.06 |
| Mar2012 | -$0.38 |
| Mar2011 | -$0.66 |
| Mar2010 | -$0.88 |
| Mar2009 | -$1.01 |
| Mar2008 | -$0.97 |
| Mar2007 | -$0.79 |
| Mar2006 | -$0.69 |
| Mar2005 | -$0.53 |
| Mar2004 | -$0.75 |
| Mar2003 | -$0.86 |
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Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.
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