Lantheus Stock: Contrarian Small-Cap Medical Devices Play With Strong Upside

lantheus stock
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Lantheus Is a Battered-Down Small-Cap Medical Devices Play That’s Worth a Look

In the healthcare medical devices segment, a beaten-down small-cap stock trading at a potentially rewarding risk-to-reward ratio is Lantheus Holdings Inc (NASDAQ:LNTH).

This company is a developer of advanced echocardiography and nuclear diagnostic imaging technologies for analyzing the heart, brain, lungs, and other organs.

The medical devices stock, which had its initial public offering (IPO) in June 2015, has been everywhere—ranging from a low of $1.76 in February 2016 to a high of $24.45 in January 26, 2018, prior to the market sell-off.

If you are long on Lantheus stock, the price action since the high has been nothing short of dismal.

Consider that LNTH stock traded at a 52-week low of $13.10 on July 27, down by close to 50% from its high and desperately searching for oversold buying support.

Chart courtesy of StockCharts.com

The fact that Lantheus stock has broken below its previous sideways distribution channel between $15.00 and $20.00 is bearish and cause for concern.

But while the situation looks pessimistic, my view is that the selling capitulation has been excessive, which translates into an aggressive buying opportunity.

Why LNTH Stock Will Likely Rally From Distressed Levels

Lantheus Holdings’ revenues have increased sequentially in three of the past four years, albeit the compound annual growth rate (CAGR) during this time frame was a mere 4.1%.

A plus was that Lantheus grew its revenues by 9.8% to $331.4 million in 2017.

Year Revenue (Millions) Growth
2013 $283.7
2014 $301.6 6.3%
2015 $293.5 -2.7%
2016 $301.9 2.9%
2017 $331.4 9.8%

For 2018, revenue growth is estimated to slide to 2.9%—to $341.1 million—prior to rallying by seven percent to $364.9 million in 2019. (Source: “Lantheus Holdings, Inc. (LNTH),” Yahoo! Finance, last accessed July 30, 2018.)

At the same time, Lantheus managed to rein in its direct costs. The cost of goods sold (COGS) grew at less than revenues in three of the past four years.

Year Cost of Goods Sold Growth
2014 -14.7%
2015 -10.3%
2016 3.9%
2017 3.2%

Gross income increased in each year from 2014 to 2017, leading to a CAGR of 20.3%, which is well ahead of the revenue CAGR of 4.1%.

Year Gross Income (Millions) Growth
2013 $77.4
2014 $125.5 62.3%
2015 $135.5 8.0%
2016 $137.8 1.7%
2017 $162.1 17.7%

Lantheus also has had positive earnings before interest, taxes, depreciation, and amortization (EBITDA)—with growth in three of the past four years.

Year EBITDA (Millions)
2013 $3.8
2014 $60.1
2015 $69.4
2016 $69.3
2017 $71.9

As far as the generally accepted accounting principles (GAAP) earnings, Lantheus was profitable in 2016 and 2017, with growth in three of the past four years.

Year GAAP Diluted EPS Growth
2013 -$2.00
2014 -$0.12 94.2%
2015 -$0.60 -418.6%
2016 -$0.82 236.7%
2017 -$3.17 286.6%

On an adjusted basis, the company is estimated to report $0.82 per diluted share in 2018 versus $1.00 per diluted share in 2017. It is also estimated to rebound to as high as $1.23 per diluted share in 2019.

Lantheus has also generated positive free cash flow (FCF), with triple-digit growth from 2014 to 2016.

Year Free Cash Flow (Millions) Growth
2013 -$20.6
2014 $3.5 116.8%
2015 $8.6 149.4%
2016 $42.2 390.6%
2017 $37.2 11.9%

Analyst Take

In my view, the current price of Lantheus stock looks attractive as a contrarian trade, given the company’s improving fundamentals.

The stock market is undervaluing LNTH stock. Insiders are buying up the stock, however, with a net 277,514 shares bought over the past six months.

I wouldn’t be surprised if Lantheus stock attracts some buying support and stages an oversold rally.