Call of the Week: A Stable Growth Play

Robert Maltbie  |

Last week, Singular Research initiated coverage on Mesa Laboratories, Inc. (MLAB), which we think is a good story. The company has a market cap of about $165 million and operates as a diversified medical equipment maker. Frank DiLorenzo, Singular's analyst covering the stock, believes that Mesa Labs should benefit from economic strength and positive trends through its diversified product offerings of medical instrumentation and quality control instrumentation used in the healthcare, pharmaceutical, food and beverage, and petrochemical industries.

The company's growth rate over the past five years have been quite stable, even in the face of the broader economic downturn. For the third quarter of 2012, revenues increased 21 percent to $9.3 million, and earnings jumped 51.5 percent to $0.57 per share. Operating margins were also strong at 34.2 percent, which were higher than the 26.2 percent from the same period a year ago.

Mesa's product portfolio is well positioned for a growing healthcare industry and expanding economy. On a valuation basis, Singular's combined discounted cash flow and PEG analysis results in a 12-month target price of $61. We have a Buy rating on Mesa Labs, and with shares currently trading at around $50, this represents an upward potential of over 20 percent.

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