ICU Medical’s Gross Margin Primed for Improvement; Still Undervalued Despite Adjusted FVE

Narrow-moat ICU Medical posted strong top-line results in its third quarter but soft margins. After a sharp cut to guidance last quarter, management reaffirmed adjusted EPS guidance of between $6.20-$6.80, now guiding toward the lower end. Considering these trends, we are lowering our fair value estimate to $195 per share from $207. We view this name as undervalued. After the firm posted disappointing results last quarter, lackluster growth and declining margins raised many questions around the Smiths acquisition. After this quarter, our worst concerns have been largely alleviated.