Harvard Bioscience, Inc. (NASDAQ:HBIO)

CAPS Rating: 4 out of 5

A developer, manufacturer and marketer of a range of specialized products, primarily apparatus and scientific instruments, used to improve life science research at pharmaceutical & biotechnology companies, universities & government laboratories worldwide.

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Player Avatar MKArch (99.71) Submitted: 1/27/2013 10:40:52 AM : Outperform Start Price: $3.59 HBIO Score: +1.35

http://www.fool.com/investing/general/2013/01/18/im-putting-real-money-on-harvard-bioscience.aspx

TMFRoyal did a better job than I could hope to do explaining the business so just read the article linked above for the business basics. The little bit of insight I have to add is that after poking around HBIO's filings trying to see what I could find on the two segments individually; I could only find individual segment results broken out last year and they stopped at operating income for LSRT. I didn't see any revenue from RMD (HART). I wanted to get a sense of the growth rate for LSRT and decided to look at revenues and gross profit for HBIO going back to 2005 as a proxy for LSRT's growth rate since it looks like RMD did not contribute at this level. I come up with ~9% growth for both revenues and gross profit.

Assuming they could hold operating expenses to slower growth than revenues they should be able to do better than 9% growth to net income. The 15%-20% growth they are targeting for LSRT still seems a bit of a stretch except that with the capital they raise from the spin off of HART and increased ability to raise additional cash maybe they land more tuck in acquisitions to get to their target growth rate. In any case assuming fairly conservative 10% bottom line growth, I think LSRT is worth a 15X multiple on earnings and based on their projected (Non GAAP) earnings of $0.40 for 2012 you get a fair value of ~$6.00/ share for the LSRT segment. Based on the breakout of LSRT in their 2011 10K I get to ~$0.30/ share in earnings or ~$4.50/ share fair value. Based on the implied value of $100M for the spin off of HART it's worth ~$3.50/ share if that valuation holds up.

So my take is right now the market is basically giving you fair value for LSRT alone and what ever you get for HART in the spin off as a bonus. If they hit their target of 15%-20% bottom line growth after spinning off HART you are getting a bargain just for LSRT without the bonus of the HART spin-off. Good enough for CAPS and I'll be poking through the 2012 10K to potentially add a small stake of real money.

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