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Here's Why You Should Hold on to Globus Medical (GMED) for Now

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Globus Medical, Inc. (GMED - Free Report) is gaining from strength in the Enabling Technologies arm. The company exited the third quarter with better-than-expected earnings. The robust performance by ExcelsiusGPS platforms buoys optimism. A strong solvency position is an added advantage. However, escalating expenses and foreign exchange woes raise apprehension.

Over the past year, this Zacks Rank #3 (Hold) stock has gained 6.4% compared with 8.9% growth of the industry and 27.5% rise of the S&P 500 composite.

The renowned medical device company has a market capitalization of $6.49 billion. Its earnings for the third-quarter 2021 surpassed the Zacks Consensus Estimate by 11.1%.

Over the past five years, the company has gained 5.5%, ahead of the industry’s 3.3% rise and the S&P 500’s 2.8% increase. The long-term expected growth rate is estimated at 10.5%, compared with the industry’s growth expectation of 15.6% and the S&P 500’s estimated 11.6% growth.

Zacks Investment Research

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Let’s delve deeper.

Factors at Play

Q3 Upsides: Globus Medical exited the third quarter of 2021 with better-than-expected earnings. Although revenues missed estimates, the company noted that eliminating an estimated $12 million to $13 million in correlated revenue headwinds in the United States during the reported quarter, revenue growth was 12% year over year. The Enabling Technologies business was strong. Despite the third quarter being typically challenging for capital sales, the company delivered the fourth straight quarter of strong growth within this business. Expansion of gross margin is an added positive.

Steady Pace of Product Development: We are upbeat about Globus Medical’s continued efforts toward innovation and research & development. In August 2021, Globus Medical’s Excelsius3D, an intelligent intraoperative 3-in-1 imaging system, gained the FDA’s 510(k) clearance. And in September, the company announced the first surgery performed with the ExcelsiusGPS Cranial Solutions for robot-assisted navigated Deep Brain Stimulation. In July, Globus Medical announced that its ExcelsiusGPS Robotic Navigation system was utilized to perform more than 20,000 spine procedures. Earlier in 2021, Globus Medical launched CREO ONE -- the market’s first robotic screw designed for spine surgery with ExcelsiusGPS.

Strong Solvency: Globus Medical exited the third quarter of 2021 with cash and cash equivalents, and short-term marketable securities of $553 million compared with $460 million at the end of the second quarter of 2021. The company finished the quarter with no debt on its balance sheet, indicating solid solvency.

Downsides

Escalating Expenses: During the third quarter, Globus Medical’s selling, general and administrative expenses were up 8.2%, while research and development expenses rose 9.9%. These escalating operating expenses are building pressure on the company’s bottom line.

Lower Demand for Healthcare Products: Globus Medical is persistently challenged by soft demand for health care products. Additionally, weak reimbursements for medical products and services may impose downward pressure on the prices of the company’s products, longer sales cycles and the slower adoption of new technologies, ultimately impacting the top line.

Exposure to Currency Movement: Globus Medical garners 14.3% of its sales from the international market. A significant portion of the company’s foreign revenues and expenses is generated in Japan, the Eurozone, the United Kingdom and Australia.  This makes it highly vulnerable to currency fluctuations.

Estimate Trend

Over the past 90 days, the Zacks Consensus Estimate for Globus Medical’s 2021 earnings has moved 1% north to $2.01.

The Zacks Consensus Estimate for its fourth-quarter 2021 revenues is pegged at $243.3 million, suggesting a 4.2% rise from the year-ago reported number.

Key Picks

A few better-ranked stocks in the broader medical space are Omnicell, Inc. (OMCL - Free Report) , Varex Imaging Corporation (VREX - Free Report) and West Pharmaceutical Services, Inc. (WST - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Omnicell has a long-term earnings growth rate of 16%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 17.4%, on average.

Omnicell has outperformed its industry over the past year. OMCL has gained 69% against the 39.5% industry decline.

Varex has a long-term earnings growth rate of 5%. The company surpassed earnings estimates in the trailing four quarters, delivering an average surprise of 115.3%.

Varex has outperformed the industry it belongs to in the past year. VREX has gained 76.6% versus the industry’s 4.8% fall.

West Pharmaceutical has a long-term earnings growth rate of 27.6%. The company surpassed earnings estimates in the trailing four quarters, delivering an average surprise of 29.4%.

West Pharmaceutical has outperformed its industry over the past year. WST has gained 59.5% against the industry’s 14% fall.