Analyst Note| Debbie S. Wang |
Narrow-moat LivaNova posted first-quarter results that demonstrated a mixed bag on recovery of non-pandemic businesses. After making slight adjustments to our projections for the full year, we plan to leave our fair value estimate unchanged, with more optimistic expectations for neuromodulation and cardiopulmonary offset by the divestiture of heart valves. Quarterly growth in constant currency was largely flat year over year, but this obscured product lines that were moving in opposite directions. The cardiopulmonary business fell 10% while the neuromodulation business rose 15%, both in constant currency compared with the prior-year period. These two product groups account for roughly 85% of LivaNova’s total revenue and have seen different rates of procedure resumption. As we’ve seen with other medical device firms, much of the favorable movement in the first quarter was fueled by recovery in the U.S. where vaccinations accelerated through the quarter, while performance in Europe remains hampered by slower vaccination, the rise of new variants, and various states of lockdown. This dynamic had an outsized effect on LivaNova’s neuromodulation business, as close to 80% of it is derived from the U.S.