LivaNova Shows Strength in Neuromodulation in the Second Quarter; Raising Our Fair Value Estimate

LivaNova delivered second-quarter results that offered refreshingly positive, though not unanticipated, growth against the weak prior-year period characterized by shelter-at-home orders. We’ve raised our fair value estimate modestly to $72 per share, after increasing our projections for more robust neuromodulation growth in 2022 and profitability gains as the product mix shifts toward more neuromodulation devices, partially offset by an expected increase in the U.S. corporate tax rate. LivaNova is facing a substantial backlog of existing neuromodulation patients who are due for replacement, which was postponed due to the pandemic. We view this need for periodic battery replacement as an aspect of switching costs that allow LivaNova to enjoy a narrow economic moat.