Here's Why You Should Hold On To Globus Medical Stock For Now
Zacks Investment Research | Dec 18, 2019 09:19PM ET
Globus Medical, Inc. (NYSE:GMED) has been gaining from several sales-building efforts — including product launches and increasing focus on its segments. The company has also been enhancing focus on international markets. Further, it lined up a few launches, including the line of 3D printed interbody spacer and next-generation expandable TLIF device, for the fourth quarter of 2019.
However, the contraction in the company’s gross margin is concerning.
Over the past year, shares of the Zacks Rank #3 (Hold) stock have outperformed its industry . The stock has gained 36.2% compared with 19.8% growth of its industry. Also, Globus Medical has outperformed the S&P 500’s 26.3% rise during the same period.
The renowned medical devices provider has a market capitalization of $5.9 billion. It projects growth of 11.3% for the next five years and expects to maintain its strong segmental performance. However, the company delivered a negative earnings surprise of 1.2%, on average, over the trailing four quarters.
Based on solid prospects, it is worth holding on to the company for now.
Factors That Make the Stock an Attractive Pick
Strong Q3 Results: Globus Medical witnessed year-over-year revenue improvements in both segments as well as globally, which bode well. The company is upbeat about the solid year-over-year improvement in the global spine business. It is also optimistic about maintaining the upside in implant sales on the ExcelsiusGPS technology. It registered rise in gross profit on solid top-line performance, which buoyed investors’ optimism.
Product Launches: We are optimistic about Globus Medical’s latest launch of the AUTOBAHN Nailing System, which is an all-inclusive platform that provides advanced clinical solutions for fractured tibia and femur. With the launch, the company aims to foray further into the trauma market.
Further, the company launched a series of products that include Autobahn Tibial Nailing, ANTHEM Tibia Plating System and the ANTHEM Clavicle Plating System. It lined up a few launches for the fourth quarter, including 3D printed interbody spacer and next-generation expandable TLIF device.
Robust Spine Arm: We are upbeat about the company as it continues to witness higher product demand in the Musculoskeletal Solutions segment. Within the segment, the domestic spine business captured a significant market share, courtesy of competitive representative recruiting and an implant pull-through from ExcelsiusGPS installations. Contributions from competitive recruiting also aided growth.
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Downsides
Escalating Expenses: In the third quarter of 2019, Globus Medical witnessed serious cost and expense pressure. Its cost of goods sold escalated, leading to a contraction in gross margin. In the third quarter, SG&A expenses increased as well on the company’s expansion of the U.S. Spine sales force, and investments in international and robotics. All these are exerting pressure on Globus Medical's bottom line.
Competitive Landscape: The presence of a large number of players made the musculoskeletal devices market intensely competitive. The orthopedic industry in particular is highly competitive, with the presence of larger players like Medtronic (NYSE:MDT) . Globus Medical needs to constantly invest in products, technologies and businesses to withstand the competitive pressure and maintain its market share.
Estimate Trend
Globus Medical is witnessing a positive estimate revision trend for the current year. Over the past 60 days, the Zacks Consensus Estimate for its earnings has moved 0.6% north to $1.72.
The Zacks Consensus Estimate for the company’s 2019 revenues is pegged at $784.5 million, suggesting 10% rise from the year-ago reported number.
Key Picks
Some better-ranked stocks from the broader medical space are Haemonetics Corporation (NYSE:HAE) and NuVasive, Inc (NASDAQ:NUVA) .
Haemonetics currently has a Zacks Rank #2 (Buy) and a projected long-term earnings growth rate of 13.5%. You can see Zacks Investment Research
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