CNBC’s Jim Cramer examined Medline, a medical supplies company that entered the market on Wednesday, and he would wait until it pulled back before deciding to purchase the stock, which had risen over 41 percent.
Cramer said, “We had the largest IPO in over four years today, and it generally went pretty darn well. In fact, it went so well that Medline looks a little too expensive for me.”
Medline became the largest IPO of the year globally. The company was able to raise funds of $6.26 billion, and the stock opened at $35, which was higher than its pre-pricing price of $29.
Cramer examined the business strategy of Medline and how the CEO, Jim Boyle, defined the company as a kind of Costco in the healthcare field, having a membership model and its own branded products.
Cramer reported that the company has an equal revenue distribution between the sales of its own surgical products and the management of the supply chain on behalf of the entire industry.
He added that Medline has established a strong revenue increase in the last several years and is strongly profitable. Cramer stated that although it is manageable, Medline has a balance sheet that is not ideal, and that the company must pay down its debts.
He also noted that most of the shareholders are the private equity firms that acquired the company before the IPO, and he noted that he is a bit wary of the fact that these people end up having the majority of the voting power.
Meanwhile, these private equity firms will have “ring the register,” soon or later, he added, that cashing out will put pressure on the stock.
He indicated that in the short term, the selling would not be a problem, but he said, “longer-term, there’s a ceiling on this one until the private equity guys have fully liquidated their positions.”
However, Cramer is fond of the company; he indicated that when the stock drops to $29 or $30, he would buy it, because he does not want to “chase it after this huge first-day move.”
Cramer mentioned that “Given the current share price, the stock’s trading at something like 45 times my back of the envelope earnings estimates, which he deemed a lot for a company with low double digit revenue growth.”
