Company Aims to Improve Profitability of Healthcare Business

Share in Masimo (MASI) surged 13% in extended trading on Friday after the company announced that it is planning a spinoff of its consumer unit to improve the profitability of its primary healthcare business.

Key Takeaways

• Masimo shares jumped 13% in extended trading Friday after the company announced that it plans to spin off its consumer unit to improve profitability in its healthcare business.
• The company said it expects to separate its consumer audio and consumer health products, but will retain its professional healthcare and telehealth products.
• The proposed separation comes several years after the company acquired audio products maker Sound United LLC to bolster its consumer-facing healthcare products.
• Masimo shares sit poised to break out from a symmetrical triangle, but may find resistance around $197 near the April 2023 swing high.

The Irvine, California-based medical devices company said it expects the separation to include its consumer audio and consumer health products, including the Stork baby monitor and the Freedom smartwatch, but said it will retain its professional healthcare and telehealth products. It anticipates CEO Joe Kiani to remain as chief executive of Masimo and become chairman of the newly created company.

Masimo acquired audio products maker Sound United LLC for $1 billion in 2022 to add the company’s premium audio and home entertainment brands to its portfolio of hospital and home medical technology solutions, aimed at bolstering its consumer-facing healthcare products. However, the company’s stock plunged 37% after announcing the deal, with investors skeptical that the non-healthcare acquisition was a suitable fit. Several months after the transaction closed, activist investor Politan Capital Management took a 9% stake in the company, vowing at the time to speak with management and the board about possible changes.

The company, which also reaffirmed its guidance for the first quarter and fiscal year 2024, said Friday it seeks to complete the spinoff as soon as feasible after it undergoes due diligence and gains regulatory approval.

“I proposed a separation of the consumer business in January and the Board has agreed to move forward. This approach is expected to maximize shareholder value as well as give both Masimo healthcare and the new consumer business the best path for success,” said Kiani in a statement released late Friday afternoon.

Since the 50-day moving average crossed above the 200-day moving average to form a golden cross signal in mid-February, the Masimo share price has consolidated within a symmetrical triangle—a chart pattern that indicates a continuation of the current uptrend. In addition, the triangle sits just above the neckline of an inverse head and shoulders formation, indicating a potential market bottom. If the stock continues to move higher, keep an eye on the $197 level, which may find overhead resistance from the April 2023 swing high.

Masimo shares gained 13.4% to $153.00 in afterhours trading Friday.

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