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Why Is Globus Medical (GMED) Up 20.5% Since Last Earnings Report?

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It has been about a month since the last earnings report for Globus Medical (GMED - Free Report) . Shares have added about 20.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Globus Medical due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Globus Medical Beats on Q3 Earnings and Revenues

Globus Medical reported third-quarter 2020 adjusted earnings per share (EPS) of 49 cents, beating the Zacks Consensus Estimate by 58.1%. The metric also improved 14.9% from the year-ago figure.

Adjusted EPS excludes certain non-recurring expenses like amortization of intangibles and acquisition-related costs.

Without the adjustments, the company registered GAAP earnings per share of 44 cents per share, reflecting a 15.8% rise from the year-ago quarter’s EPS.

Revenues

Third-quarter 2020 worldwide sales totaled $216.1 million, up 10.1% year over year (up 10% at constant exchange rate or CER). The reported figure surpassed the Zacks Consensus Estimate by 9.3%.

Quarterly Details

Sales generated in the United States during the quarter under review improved 11.9% year over year to $182.1 million driven by strong recovery of U.S. spine, partially offset by lower INR (imaging, navigation and robotic) sales due to the lingering impacts of COVID-19.

International sales of $34 million improved 1.4% from the year-earlier quarter (up 0.4% at CER). According to the company, performance of its spinal implant business varied by region, showing strong growth in Spain, Australia, Germany and Italy and demonstrating adverse pandemic impacts in Japan, the U.K. and India.

Musculoskeletal Solutions products generated revenues of $207.1 million, up 13.6% year over year. Enabling Technologies product revenues of $9 million in the quarter reflected a 34.9% plunge from the prior-year figure.

Margin

Gross profit in the reported quarter dropped 5.4% year over year to $159 million. Gross margin contracted a huge 329 basis points (bps) to 73.6% on a 25.8% rise in cost of goods sold to $57.1 million.

Selling, general and administrative expenses in the reported quarter were $89.2 million, up 0.8% from the year-ago quarter. Research and development expenses, however, declined 0.6% to $14.4 million.

Operating margin in the reported quarter was 25.6%, a 126 basis-point expansion from the year-ago period.

Cash Position

Globus Medical exited the third quarter with cash and cash equivalents, and short-term marketable securities of $409.6 million compared with $316.7 million at the end of the second quarter.
Notably, the company remains debt free.

Cumulative net cash provided by operating activities at the end of the third quarter was $118.6 million compared with the year-ago $117.7 million.

2020 Guidance

Globus Medical is currently unable to predict the extent or duration of the pandemic’s impact on its financial and operating results. Accordingly, the company has not provided any financial guidance this time as well.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 6% due to these changes.

VGM Scores

Currently, Globus Medical has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Globus Medical has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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