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Integra (IART) Arms Grow Sequentially Despite Supply Issues

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On Feb 23, we issued an updated research report on Integra LifeSciences Holdings Corporation (IART - Free Report) . The company has been witnessing certain major developments overseas. However, a tough competitive landscape is a concern.

This New Jersey-based company is a leading developer, manufacturer and marketer of surgical implants and medical instruments for use in neurosurgery, extremity reconstruction, orthopedics and general surgery.

Shares of this Zacks Rank #3 (Hold) company have outperformed its industryin the past month. The stock has climbed 3.6% compared with the industry’s 1.4% rise.

Integra’s fourth quarter of 2020 reflected a 5% sequential increase in revenues from the third quarter. Capital equipment sales improved more than 40% on a sequential basis. Despite the surge in COVID-19 case affecting many of the markets resulting in tight ICU bed capacity, Integra recorded sequential growth.

Also, most of the franchises or products that returned to growth earlier in the third quarter sustained the momentum in the fourth quarter as well. During the fourth quarter of 2020, U.S. CSS organic growth increased about 2%. Global neurosurgery sales improved sequentially. Fourth-quarter sales of instruments franchise increased sequentially by high-single digits. Also, sales of SurgiMend, nerve and amniotic increased double digits while sales of Integra skin rose in low single digits. Fourth-quarter sales in private label increased 2%, in line with expectations.

The company is confident of achieving long-term goals of 5% to 7% revenue growth organically, more than 70% gross margin growth and double-digit adjusted earnings per share growth.

The company is confident that once the environment returns to growth, the actions Integra is taking and the plans it has will position it for outperformance over the long term.

On the flip side, in the fourth quarter, Integra’s total revenues declined 1.6% year over year to $388.6 million. The company also registered disappointing segmental performance within OTT and CSS segment due to coronavirus-led business disruptions. International sales in CSS were down in low single digits in the reported quarter.

The OTT segment saw a decline of 1% on a reported basis and a fall of 1.3% on an organic basis in the fourth quarter of 2020. Contraction of gross margin is worrying. Notably, growth in Japan and Canada was offset by slower recovery in the company’s indirect markets, including Latin America and parts of Greater Asia. The impact from discontinued products is expected to continue to decline and will have a negative impact of approximately 1.3% on 2021 revenues.

Integra has underperformed the industry in the past year. The stock has gained 16.3% compared with the industry’s 24.8% rise.

Key Picks

A few better-ranked stocks from the broader medical space are DENTSPLY SIRONA Inc. (XRAY - Free Report) , Invacare Corporation (IVC - Free Report) and McKesson Corporation (MCK - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of Zacks #1 Rank (Strong Buy) stocks here.

DENTSPLY SIRONA has a projected long-term earnings growth rate of 54%.

Invacare has a projected long-term earnings growth rate of 57%.

McKesson has an estimated long-term earnings growth rate of 8%.

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