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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 well poised for growth in the coming months, backed by strength in the Enabling Technologies arm. The robust performance of the ExcelsiusGPS platforms buoys optimism. However, stiff competition and foreign exchange woes raise apprehension.

Over the past year, this Zacks Rank #3 (Hold) stock has gained 14% compared with 12.6% growth of the industry and 29.7% rise of the S&P 500 composite.

The renowned medical device company has a market capitalization of $6.49 billion. Over the past five years, the company has gained 5.5%, ahead of the industry’s 3.3% rise. The long-term expected growth rate is estimated at 10.5%, compared with the industry’s growth expectation of 15.9%.

Let’s delve deeper.

Key Growth Drivers

Prominent Trend Improvement: Following the initial pandemic-led downturn of the Globus Medical business, there has been a visible rebound in the company’s revenue trend that continued with a steady climb upward through the second quarter. In the quarter, the company registered worldwide revenue growth of 6% year over year. Revenues from enabling technologies surged 124.1% year over year.

According to the company, ExcelsiusGPS’ clinical superiority in the operating room continues to be the underlying factor driving this momentum. Adoption and utilization remained strong even in the COVID-dampened third quarter and prospective surgeon customers routinely acknowledged that ExcelsiusGPS is the best fine robot on the market.

Spine Arm Grows Domestically: Globus Medical’s U.S. Spine business accelerated considerably in the third quarter, showing a continued growth trend over the past few quarters. U.S. Spine continues to gain significant market share growing 2% as reported and 10% after factoring in the impact of COVID-related shutdowns. This is on top of a challenging comp from an extremely strong year-ago period when U.S. spine sales growth was 17% year over year.

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The segment is gaining from product launches, competitive recruiting and pull-through from robotics. The company has also been witnessing strong adoption of single-position lateral and prone lateral procedures, which are enhanced by the capabilities of ExcelsiusGPS.

International Business Holds Potential: Globus Medical’s international revenues currently account for 14.3% of the company’s total sales. During the third quarter of 2021, the company’s noted that its international spine business varied by region, demonstrating strong year-over-year growth in countries, including the U.K., Spain, and Belgium. This growth was partially offset by lingering COVID-19 impacts as well as the ongoing transition in Japan, which targets longer-term sustained growth.

Downsides

Exposure to Currency Movement: Globus Medical records 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.

Competitive Landscape: The presence of a large number of players made the musculoskeletal devices market intensely competitive. In particular, the orthopedic industry is highly competitive with the presence of larger players like Zimmer Biomet, Stryker, Johnson & Johnson’s DePuy, Smith & Nephew and Medtronic. Globus Medical needs to constantly introduce or acquire new products to withstand the competitive pressure and maintain its market share.

Estimate Trend

Over the past 90 days, the Zacks Consensus Estimate for Globus Medical’s 2022 earnings has moved 1.5% north to $2.02.

The Zacks Consensus Estimate for its fourth-quarter 2021 revenues is pegged at $242.9 million, suggesting a 4% rise from the year-ago reported number.

Key Picks

A few better-ranked stocks in the broader medical space include Thermo Fisher Scientific Inc. (TMO - Free Report) , McKesson Corporation (MCK - Free Report) and West Pharmaceutical Services, Inc. (WST - Free Report) . You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Thermo Fisher surpassed earnings estimates in each of the trailing four quarters, the average surprise being 9.02%. The company currently carries a Zacks Rank of 2 (Buy).

Thermo Fisher’s long-term earnings growth rate is estimated at 14%. The company’s earnings yield of 3.7% compares favorably with the industry’s (3.6%).

McKesson beat earnings estimates in each of the trailing four quarters, the average surprise being 19.9%. The company currently carries a Zacks Rank #2.

McKesson’s long-term earnings growth rate is estimated at 8.9%. The company’s earnings yield of 9.9% compares favorably with the industry’s 3.2%.

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. The company currently carries a Zacks Rank #2.