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Tuesday February 21, 2012
Zoll: Small cap manager eyes LifeVest
by Benjamin Shepherd, editor ETF Investment Insider I recently spoke with Ken Salmon, co-manager of BMO Small-Cap Growth (MRSCX), who explained his investment process and shared his market outlook. Below, he highlights his reasons for owning Zoll Medical (ZOLL). "Zoll Medical is best known for the portable defibrillators used to treat sudden cardiac arrest that are seen in hospitals and office buildings. "Although that product is an important component of Zoll Medical's business, the company boasts a diverse product line that is changing the trajectory of its earnings and revenue growth. "Zoll Medical's business slowed in 2009 because budget cuts in the public sector reduced demand for defibrillators from non-profit hospitals and municipalities' emergency services. But the company caught our attention when its business started to recover. "During our research process, we discovered new products, such as the LifeVest, that were starting to drive growth. 
"The LifeVest is an external defibrillator that a patient wears. When a patient with a heart condition requires a pacemaker, there's usually a lag between when that determination is made and when the device is actually implanted in the patient's body. "This interim period is extremely risky for patients, and consequently the LifeVest can be prescribed to them until they receive their pacemaker. "The LifeVest has an excellent safety and efficacy record. This product has helped accelerate the company's growth and improve its margins. "But in mid-2011, the Centers for Medicaid & Medicare Services (CMS) decided to revisit its reimbursement policies for the product, as well as the indications for which it was being reimbursed. "With some degree of precision, investors can determine how much revenue a company will lose if CMS eliminates reimbursement for an indication of one of its products. "In this case, such an outcome would have weighed heavily on Zoll Medical's earnings, so that action roughly halved the price of the stock in a span of just a few weeks. "But the LifeVest is such a well-regarded product that doctors, hospitals and medical associations, including the American Heart Association, advocated for the product with CMS. "In mid-December, CMS decided to maintain its existing reimbursement policies. Since then, the stock has largely recovered and its prospects for growth remain strong. "Last year, Zoll Medical's earnings per share (EPS) grew 60 percent and we believe that 35 percent to 40 percent EPS growth is reasonable for this fiscal year, with high potential for it to continue into next year as well." Learn more about Benjamin Shepherd's financial newsletter at ETF Investment Insider. 
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