Medical device company Penumbra (NYSE: PEN) reported first-quarter results for fiscal 2025 that beat Wall Street expectations, with sales up 16.3% year-over-year to $324.1 million. The company expects full-year revenue of about $1.35 billion, close to analyst expectations. Its non-GAAP earnings per share of $0.83 were 24.4% higher than analysts’ consensus estimates.
Penumbra (PEN) Q1 FY2025 Highlights:
Revenue: $324.1 million vs. $315.7 million (up 16.3% year-over-year, 2.7% ahead of estimates)
Adjusted EPS: $0.83 vs. $0.67 (24.4% ahead of estimates)
Adjusted EBITDA: $59.6 million vs. $42.32 million (18.4% margin, 40.8% ahead of estimates)
The company reaffirmed its full-year revenue guidance at the midpoint of $1.35 billion
Operating margin: 12.4%, up from 4.3% a year ago
Constant currency revenue up 16.9% year-over-year (15.2% a year ago)
Market cap: $10.72 billion
Company Overview
Penumbra (NYSE: PEN) was founded in 2004. In 2017, the company aimed to address challenging medical conditions with huge unmet needs, develop and manufacture innovative medical devices for treating vascular diseases and providing immersive medical rehabilitation solutions.
Medical Devices and Supplies – Cardiology, Neurology, Vascular
The medical devices and supplies industry, especially in the areas of cardiology, neurology, and vascular care, benefits from a business model that balances innovation with relatively predictable revenue streams. These companies focus on developing life-saving devices such as stents, pacemakers, neurostimulation implants, and vascular access tools to treat critical illnesses, especially chronic diseases. The continued demand for these devices, coupled with the growing global demand for advanced therapies, provides stability and long-term growth opportunities for the industry. However, the industry also faces a number of obstacles, such as high research and development costs, rigorous regulatory approval processes, and reliance on reimbursement from the healthcare system, which may put downward pressure on prices. Looking ahead, the industry is expected to benefit from favorable factors such as aging populations, which often lead to higher rates of disease, and technological advances such as minimally invasive surgery and connected devices that can improve patient monitoring and treatment outcomes. Innovations in robotic-assisted surgery and AI-driven diagnostics are also expected to accelerate adoption and expand treatment capabilities. However, potential headwinds include pricing pressures from value-based care models and the complexity of ongoing changes in regulatory frameworks that may prioritize further reductions in healthcare costs.
Sales Growth
Looking back at a company’s long-term sales performance can provide insight into its quality. Any business can have short-term success, but the top companies are able to sustain growth for many years. Fortunately, Penumbra’s sales have grown at an impressive 17.4% compound annual growth rate over the past five years. Its growth rate exceeds the average for healthcare companies, indicating that its products are resonating with customers.
Long-term growth is important, but in healthcare, a five-year historical perspective can miss new innovations or demand cycles. Penumbra’s annualized revenue growth of 18.4% over the past two years is above its five-year trend, indicating strong demand and recent acceleration.
We can further understand its sales dynamics by analyzing the company’s constant currency revenue, which excludes currency fluctuations that the company cannot control and do not reflect demand. The company’s constant currency sales have averaged 18.5% year-over-year growth over the past two years. Since this number is in line with its normal revenue growth, we can see that Penumbra has properly hedged its foreign exchange risk.
For the quarter, Penumbra reported year-over-year revenue growth of 16.3%, and revenue of $324.1 million was 2.7% higher than Wall Street expected.
Looking ahead, sell-side analysts expect revenue to grow 12.6% over the next 12 months, a slowdown from the past two years. Still, this forecast is healthy and suggests that the market is pouring in its products and services.
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Operating Margin
Penumbra has been profitable for the past five years, but is constrained by its large cost base. Its average operating margin is just 1.8%, which is pretty lackluster for a healthcare company.
On the plus side, Penumbra’s operating margin has risen 7.4 percentage points over the past five years, thanks to the operating leverage given by its growing sales. This performance is mainly due to its improved performance in the past, as the company’s margins have been basically unchanged in two years.
For the quarter, Penumbra’s operating margin was 12.4%, an increase of 8.1 percentage points year-over-year. This increase is pleasing and indicates that the company is becoming more efficient.
Earnings per Share
Revenue trends explain the company’s historical growth, but long-term changes in earnings per share (EPS) indicate the profitability of this growth – for example, a company can inflate its sales by overspending on advertising and promotions.
Over the past five years, Penumbra’s EPS has grown at a compound annual growth rate of 34.5%, which is higher than its annualized revenue growth rate of 17.4%. This shows that as the company’s business has expanded, its earnings per share have also strengthened.
Digging deeper into Penumbra’s earnings quality can give us a better understanding of its performance. As we mentioned earlier, Penumbra’s operating margin has grown 7.4 percentage points over the past five years. This is the most important factor in its earnings growth (besides the impact of revenue); taxes and interest expenses also impact EPS but are not reflective of the company’s fundamentals.
Penumbra’s first quarter earnings per share were $0.83, up from $0.41 in the same period last year. This performance easily beat analyst expectations, and shareholders should be pleased with the results. Wall Street expects Penumbra’s full-year EPS to rise 21.7% to $3.29 over the next 12 months.
Key Takeaways from Penumbra’s First Quarter Results
We were impressed with Penumbra’s revenue performance this quarter, which significantly exceeded analysts’ expectations on a constant currency basis. We were also pleased that its EPS and EBITDA exceeded Wall Street expectations. Looking at the big picture, we think there were some important positives this quarter. Immediately after the results were released, the stock rose 5.4% to $293.55.
Penumbra’s quarter was encouraging, but one earnings number alone doesn’t necessarily determine whether its stock is worth buying. Let’s wait and see if this is a good investment. We believe the latest quarter’s results are just one piece of the puzzle of long-term business quality. Quality combined with valuation helps determine if the stock is worth buying.
