ITGR Shares Gain on the Divestiture of Its Non-Medical Business Line
Integer Holdings Corporation ITGR recently announced that it has entered into an agreement to divest its Electrochem business, which focuses on non-medical applications for the energy, military and environmental sectors, to Ultralife Corporation (ULBI).
Ultralife is likely to acquire Electrochem for $50 million in cash, subject to customary working capital adjustments. The transaction is expected to close by the end of October.
Likely Trend of ITGR Stock Following the News
Following the announcement, shares of the company gained 3.3% and closed at $130 on Monday.
Following the divestiture transaction, Integer Holdings is likely to completely focus on its medical business segment with additional cash to pay down debt and execute its inorganic growth strategy. Accordingly, we expect the ITGR stock to gain investors’ optimism around this divestiture decision.
For the past six months, ITGR shares have rallied 12.1% compared with the industry’s rise of 2.7%. The S&P 500 increased 10.2% in the same time frame.
Meanwhile, ITGR currently has a market capitalization of $4.22 billion. It has an earnings yield of 4.22%, much higher than the industry’s negative yield of -5.02%.
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More on ITGR’s Non-Medical Business & Divestiture News
Integer Holdings’ Non-Medical segment comprises the Electrochem product line. The company provides custom battery packs to the energy, military and environmental markets for use in extreme environments.
Electrochem provides customized battery power and power management systems to markets where safety, reliability, quality and durability are critical. Electrochem also manufactures complementary technologies in the form of real-time battery monitoring and alternate power technology in the form of high-temperature supercapacitors.
Non-Medical sales for the second quarter of 2024 and the six months ended June 28, 2024, were 2% and 1.9% of total sales, respectively. The divestiture of ITGR’s non-medical business is an example of managing its portfolio to accomplish strategic financial objectives. Ultralife is likely to be an ideal buyer for Electrochem as it is a leader in providing critical power solutions to a variety of industries that include energy, defense, and environmental markets.
In the future, Integer Holdings will report its Electrochem business's results as discontinued operations, given that it currently forms part of its "Non-Medical" segment. This will include any gain or loss recognized on the sale of the business.
ITGR intends to use the proceeds from the sale to pay down outstanding debt and for general corporate purposes. In the 2024 full-year guidance for the non-medical segment, ITGR included $36 million in sales and $5 million in adjusted EBITDA. The company expects the transaction to be neutral to earnings per share.
Strength in ITGR’s Medical Business
Integer Holdings’ Medical segment includes the C&V, CRM&N and AS&O product lines. The C&V product line leverages a global footprint to produce a full range of components, subassemblies, and finished devices used in interventional cardiology, structural heart, heart failure, peripheral vascular, neurovascular, interventional oncology, electrophysiology, vascular access, infusion therapy, hemodialysis, urology and gastroenterology procedures.
Medical sales for the second quarter of 2024 were 97.9% of total sales and increased 9.8% and 5.9% on a reported and organic basis, respectively. In January, Integer Holdings acquired 100% of the outstanding capital stock of Pulse Technologies, Inc. (Pulse).
Per management, the acquisition of Pulse (consistent with its tuck-in acquisition strategy) further increases its end-to-end development capabilities and manufacturing footprint in targeted growth markets. It provides customers with expanded capabilities, capacity and resources to accelerate the time to market for customer products.
The Zacks model anticipates the Medical segment to exhibit a revenue CAGR of 8.6% between 2023 and 2026. The C&V, CRM&N and AS&O product lines are expected to reflect a revenue CAGR of 10%, 7.1% and 6.7%, respectively, during the same period.
ITGR’s Zacks Rank & Other Stocks to Consider
ITGR carries a Zacks Rank #2 (Buy) at present.
Some other top-ranked stocks in the broader medical space are Universal Health Service UHS, Quest Diagnostics DGX and ABM Industries ABM. While Universal Health Service sports a Zacks Rank #1 (Strong Buy), Quest Diagnostics and ABM Industries carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Universal Health Service has an estimated long-term growth rate of 19%. UHS’ earnings surpassed estimates in each of the trailing four quarters, with the average being 14.58%.
Universal Health Service has gained 41.1% so far this year compared with the industry's 34.8% rise.
Quest Diagnostics has an estimated long-term growth rate of 6.20%. DGX’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 3.31%.
Quest Diagnostics shares have gained 3.7% so far this year compared with the industry’s 10.2% rise.
ABM Industries’ earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 7.34%.
ABM's shares have risen 24.1% so far this year compared with the industry’s 11.9% growth.
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