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Grifols Raises First-Quarter Targets

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By on S&P 500, Technology & Software

Grifols released first-quarter results this morning that missed expectations on the top line, but materially beat our adjusted EBITDA target. Our full-year revenue target is essentially unchanged, but we will significantly raise our adjusted EBITDA and EPS estimates going forward. In our follow-up call (management does not host quarterly calls), we gained confidence that our targets for 2014 and beyond had been quite conservative, that the underlying market volume trends are strong and that pricing is stable to modestly positive.

We now anticipate 29% growth in EBITDA this year and 9% next year, driven by 8.0% and 7.2% revenue growth (above our prior 7% and 5% targets), respectively, while paying out 40% of earnings as a dividend. Stock Thoughts We identified Grifols as our top pick for 2014. At 13.4 times our new 2015 EPS target of $3.00 (was $2.65) and 8.1 times our 2015 EBITDA estimate, the shares trade at a roughly 25% discount to the Madrid-listed A shares, and a discount to its growth and profitability peers in the medical technology space. We believe the stock will outperform the broader med tech group and reiterate our Outperform rating.

As a side note, the company will host its annual investor meeting on June 5 and 6 in Barcelona. We expect management to lay out more fully the revenue opportunities from the Novartis (NVS $87.67) diagnostic acquisition at those sessions. The stock typically trades well into that meeting, and poorly on the event, as the public disclosures frustrate some investors.

May 07, 2014 Stock Rating: Outperform Company Profile: Aggressive Growth Symbol: GRFS (NASDAQ) Price: $40.32 (52-Wk.: $25-$43) Market Value (mil.): $16,881 Fiscal Year End: December Long-Term EPS Growth Rate: 15% Dividend/Yield: $0.22/0.5% 2013A 2014E 2015E Estimates EPS Q1 NA A$0.59 $0.71 Q2 NA $0.68 $0.75 Q3 NA $0.66 $0.73 Q4 NA $0.74 $0.81 FY $1.75 $2.67 $3.00 CY $2.67 $3.00 Sales (mil.) 3,769 4,851 5,201 Valuation FY P/E 23.0x 15.1x 13.4x CY P/E 15.1x 13.4x Trading Data (FactSet) Shares Outstanding (mil.) 1,196 Float (mil.) 0 Average Daily Volume 563,059 Financial Data (FactSet) Long-Term Debt/Total Capital (MRQ) 0.0 Book Value Per Share (MRQ) 2.4 Return on Equity (TTM) 17.1 Two-Year Price Performance Chart Sources: FactSet, William Blair & Company estimates

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