$2.90
$53.00
bear $2.90
base $22.00
bull $53.00
margin of safety $11.00
market price* $70.78
TransMedics makes the Organ Care System (OCS), a portable device that keeps donor hearts, lungs and livers warm and functioning outside the body, and runs the National OCS Program (NOP), which provides organ recovery, perfusion management and air and ground transport. It has acquired 22 fixed-wing aircraft for organ transport. Revenue rose from $93.5 million in 2022 to $241.6 million in 2023, $441.5 million in 2024 and $605.5 million in 2025. About 97% of revenue ($584.7 million of $605.5 million) comes from US transplant customers; $16.7 million comes from outside the United States. First-half 2026 revenue was $363.9 million, up about 21% on the first half of 2025. How we measured earnings. We start from operating cash flow, remove working-capital swings (receivables and inventory built heavily in 2023 and 2024) and subtract stock compensation as a real cost. We then deduct only the part of capital spending needed to stand still, treating spending in proportion to revenue growth as growth investment. On that basis, owner earnings per share were negative from 2021 through 2024 (about -$1.49, -$0.99, -$3.16 and -$0.53) because the company was building capacity, aircraft and receivables, and turned positive at $2.95 in 2025. The company's 2025 net income of $190.3 million includes an $83.5 million deferred tax benefit from releasing a valuation allowance on its US tax assets; that is a non-cash accounting gain and is not in our figures. Pre-tax income was roughly $107 million. The company has $370.9 million of federal loss carryforwards, so cash taxes stay low for now. Anchor. Only 2024 and 2025 reflect the current business, with the national organ program operating at scale. We use the median of those two years, about $1.21 per share, rather than the single strong 2025 figure. Two things support caution: 2025 relied on very low capex ($59.3 million) after two years of heavy capital spending ($151.8 million in 2023 and $129.7 million in 2024), and in the first half of 2026 operating cash flow was $41.8 million (against $88.8 million a year earlier) while capex rose to $43.7 million. Those 2026 results do not yet confirm a level of $2.95. Growth-path check: last year's owner earnings growth is not meaningful (it went from negative to positive); we assume 15% in year 1 because first-half 2026 revenue is already up 21% (Q2 2026 10-Q), and taper it to zero by year 8. Base case: $22 per share. Owner earnings of $1.21 grow 15%, 12%, 10%, 8%, 6%, 4% and 2% over seven years to about $2.08, then hold flat through year 20, discounted at 6%. Credited: the revenue already being delivered by hospitals using OCS Liver and OCS Heart (2025 US OCS revenue rose $162.8 million on higher disposable-set volumes), the FDA approvals in place, existing reimbursement through standard transplant billing, and patents. The competitors are a cold-storage device (Paragonix, acquired by Getinge in 2024) and single-organ warm perfusion systems (OrganOx, acquired by Terumo in October 2025, and XVIVO for lungs only). Not credited: next-generation OCS Heart and Lung devices, which are still in clinical trials (ENHANCE Heart began in late 2025; the Lung trial was approved in January 2026), international expansion (only $16.7 million of revenue and no long-term reimbursement yet), and any margin expansion beyond the current 60% gross margin. Bear case: $2.9 per share. Well-funded new owners (Terumo, Getinge) squeeze pricing and service volumes, capex stays elevated as it was in the first half of 2026, and owner earnings stay near $0.30 per share for ten years before fading to zero over the next ten. The company also has $460 million of convertible notes issued in May 2023 that must be refinanced or converted; leverage belongs in this case, not in the discount rate. Bull case: $53 per share. 2025 owner earnings of $2.95 prove to be the true level, and growth of 15%, 12%, 10%, 8%, 6% and 4% follows, matching first-half 2026 revenue growth of 21% and 2025 growth of 37% moderating, then flat through year 20. Not credited: any new organ or new country. Margin-of-safety price. The margin-of-safety price is about $11 per share: roughly half of the base case, a wide margin because the company has only one year of positive owner earnings, competes with large acquirers, and has not yet repeated its 2025 cash-flow level in 2026. The bear case sets the limit; the upside in the bull case bears on the range of outcomes rather than on the price. What would make this wrong. If full-year 2026 cash flow after capex and stock compensation is again negative, the 2025 figure was a one-off and the base case is too high. If the aircraft fleet needs replacement or larger growth capex than we assume, cases fall. Conversely, if OCS volumes keep growing 20% or more with capex near $60 million a year, the bull case becomes the base case.