No Profit, No Problem for Israeli Company’s World-Beating Stock

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  • Mazor Robotic’s Tel Aviv shares rally 125 percent this year
  • Medtronic deal expected to boost company’s revenue and profit

An Israeli surgical robot maker that hasn’t posted a profit since at least 2007 has become the world’s best performing medical devices stock.

Shares in Mazor Robotics Ltd. have more than doubled since Medtronic Plc, the largest maker of equipment to treat spinal conditions, in May agreed to take a stake of as much as 15 percent in the company and promote its next-generation robotic spinal system called Mazor X. The 125 percent jump in the stock’s primary listing in Tel Aviv this year beat about 200 peers worldwide.

“If you’re going to have someone on your back, you’re not going to want to go to a hospital that doesn’t use a robot,” said Jeffrey Cohen, a Miami-based analyst with Ladenburg Thalmann & Co. “Mazor has the best studied robotics platform that exists today and with the new X platform they have leapfrogged the competition as well. The stock definitely has upside from here.”

Not only is the Medtronic deal expected to give Mazor an annual order quota for its new X platform in the hundreds from 2018, it will also mean the robot maker’s products will be marketed by about 600 people, a leap from its current team of 16 sales staff. That’s a boost to a company whose operating expenses were 136 percent of revenue last year.

“That’s the real big numbers stage,” said Ori Hadomi, chief executive officer of Caesarea, Israel-based Mazor. “With significant reduction in spending given the synergies with Medtronic you can understand why it shouldn’t take long for us to move to profitability.”

Hadomi sees the company, which counts billionaire George Soros’ hedge fund among its top shareholders, posting a net income of at least 25 percent of revenue within five years.

Doubling Sales

While the robot maker has incurred losses in every year since listing in 2007, even as revenue rose to a record $26 million last year, annual sales are forecast to more than double by the end of 2017 according to an Aug. 5 report from Ladenburg, a market maker for the company.

Medtronic will purchase newly issued securities representing 4 percent of the company’s outstanding shares for about $12 million, Mazor said in May, with an opportunity to buy an additional 6 percent. It can add a further 5 percent in future allotments that Medtronic can cap at $20 million apiece.

Rival Deal

Still, Mazor may face an increasing threat from a deal between rivals, Needham & Co. said last month. Medtech’s more brain-oriented focus is likely to change following a pact with Zimmer Biomet Holdings, which has a large spinal implant business, Needham analyst Mike Matson wrote.

Mazor’s stock advanced to 44.40 shekels ($11.66) at the close of trading in Tel Aviv, the highest level since February 2014. It’s American Depositary Receipts, one of which represents two Israeli shares, climbed 131 percent this year to $23.46 through Wednesday.

Ladenburg’s Cohen reiterated his buy rating for Mazor’s ADRs last week, raising his price target to $29 from $27.50.