Masimo Stock: Is Its $1.025 Billion Sound United Buyout ‘Crazy’?

Masimo stock crashed Wednesday on a nearly $1.03 billion foray into the consumer electronics world with its acquisition of Sound United.

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The deal marries medical technology player Masimo (MASI) and privately held Sound United, a manufacturer of consumer audio devices like earphones and speakers. Masimo argued the $1.025 billion buyout gives it access to an established distribution channel with major retailers and a potential to cross-sell its products.

But investors and analysts weren’t impressed.

“So, is this deal crazy? Or crazy like a fox?” Needham analyst Mike Matson asked in a report to clients. “We do not expect a positive reception from investors.”

In morning trades on today’s stock market, Masimo stock tumbled 26.1% near 169.20.

Masimo Stock: Unusual Buyout

The deal is unusual for a number of reasons, Matson said.

“This is the first time we have seen a medtech company move into non-health consumer products with a large acquisition,” he said.

Further, the transaction will be dilutive to revenue growth and margins, but accretive to earnings. The company also doesn’t expect any cost synergies, Matson noted.

Finally, there’s a huge difference in valuation between the buyer and seller, he said. Masimo’s market cap was roughly $12.6 billion early Wednesday. It’s spending $1.025 billion to acquire Sound United. In 2021, Masimo generated $1.24 billion in sales. Sound United brought in $900 million.

Matson kept his hold rating on Masimo stock.

Earnings Beat Expectations

BTIG analyst Marie Thibault said investors likely will struggle valuing the new Masimo, which will be a blended medtech and consumer tech company.

“We commend Masimo’s willingness to make a major leap to fulfill a multiyear vision and understand the hesitancy to share more details for competitive reasons — but we are left with little concrete to point to over the near-to-mid-term that makes sense of this tie-up,” she said in her note to clients.

Thibault maintained her neutral rating on Masimo stock. Masimo said the deal will close midyear.

Promisingly, Masimo reported in-line fourth-quarter sales of $327.6 million, up 11% on a reported basis. Adjusted earnings were $1.21 per share, above Masimo stock analysts’ call for $1.10, Needham’s Matson said.

Masimo also retained its 2022 revenue guidance for $1.35 billion, implying constant-currency growth of 9.5%. The company also expects to earn $4.34 per share. That was a hair below expectations and implies 8.8% growth, he said.

Still, Masimo stock plummeted to its lowest point in nearly two years after the open.

Follow Allison Gatlin on Twitter at @IBD_AGatlin.

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