Why Utah Medical Products (UTMD) is a Hidden Gem Amid Earnings Declines

Utah Medical Products, Inc. (NASDAQ: UTMD), a leading manufacturer of specialty medical devices, has faced headwinds in recent quarters with net income declining 23.1% year-over-year in Q1 2025. Yet, beneath the surface of these earnings challenges lies a compelling investment opportunity. Despite the dip, UTMD's fortress-like balance sheet, resilient dividend policy, and disciplined share repurchases position it as a rare value play in a volatile healthcare sector. Here's why now could be the time to act.

The Balance Sheet: Cash Rules, Debt Does Not

UTMD's financial health is its most compelling asset. As of March 2025, the company held $83.3 million in cash, with zero debt, and stockholders' equity of $117 million. This liquidity buffer isn't just a safety net—it's a weapon. Even as net income dipped, UTMD maintained ample funds to fuel dividends, repurchases, and operations without compromising financial stability.

Dividends: Growth Amid Declines

While earnings have contracted, UTMD's dividend has grown for three consecutive years, with a payout ratio of just 32.28% of earnings (trailing 12 months). This leaves ample room for further increases. The latest quarterly dividend of $0.305 per share, yielding 2.3% as of May 2025, outpaces the S&P 500's average yield of 1.5% and reflects a 12.12% annualized dividend growth rate over three years.

Crucially, UTMD's payout ratios (earnings and cash flow) are well below the 75% threshold that signals danger. This dividend resilience is a stark contrast to peers cutting payouts during downturns.

Share Repurchases: Precision in a Declining Market

UTMD has been a master of capital allocation. In Q1 2025 alone, it repurchased 54,267 shares at an average price of $59.35, reducing the outstanding share count by 8.5% year-over-year to 3.28 million. This aggressive buyback program has offset earnings declines: despite a 23.1% drop in net income, diluted EPS fell only 16%, thanks to the shrinking share base.

The stock price, now trading at $56.04 (down 9% from year-end 2024), presents a rare opportunity. UTMD's buybacks are timed to capitalize on what it deems an undervalued stock—a signal of confidence in its intrinsic worth.

The Undervaluation Case

At current levels, UTMD trades at a P/E ratio of 12.5x (based on trailing earnings), far below the healthcare sector average of 18.9x. This discount isn't justified by fundamentals: its cash hoard, dividend growth, and share repurchases are all hallmarks of a company primed for a rebound.

Risks, but Not Dealbreakers

• Litigation: Ongoing product liability lawsuits over its Filshie devices pose a risk, but these have been ongoing for years without crippling the company.
• Dividend Yield Lag: UTMD's yield trails medical sector averages (2.3% vs. 5.27%), but its growth trajectory is stronger.

Conclusion: Buy Before the Turn

UTMD's earnings stumble is temporary, not terminal. Its fortress balance sheet, dividend discipline, and share repurchase efficiency create a low-risk, high-reward setup. With shares down 9% year-to-date and cash reserves bulging, this is a rare chance to buy a future dividend grower at a discount.

Act now—before the market catches on.