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NuVasive (NUVA), GMED Merger Aids, Macro Woes Mar Growth

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NuVasive's impending merger with Globus Medical (GMED - Free Report) seems strategically aligned with the company’s business. Headwinds like pricing and payers’ pressure, reimbursement issues and competitive landscape are major downsides for the company. NuVasive currently carries a Zacks Rank #3 (Hold).

Over the past three months, NUVA has outperformed its industry. The stock has lost 5.3% compared with the industry's 4% decline.

NuVasive exited the fourth quarter of 2022, with strong sales performance across the U.S. Spinal Hardware and U.S. Surgical Support businesses. The continued demand for the Simplified Cervical Disc and the Pulse platforms is also encouraging.

The market is also upbeat about the company’s mega $3.1 billion merger deal with Globus Medical, which promises strategic and financial synergies. Per the terms of the agreement, which was unanimously approved by the boards of directors of both companies, NuVasive shareholders will receive 0.75 of a share of Globus Medical Class A common stock for each share of NuVasive common stock owned at the close of the transaction. Following the completion of the transaction, NuVasive shareholders will own approximately 28% of the combined company on a fully diluted basis.

The management at NuVasive is optimistic about the $3.1 billion mega-merger deal with Globus Medical. This is expected to bring together two major players in the growing musculoskeletal space, which is currently valued at $50 billion. The transaction pairs Globus Medical's and NuVasive's complementary spine and orthopedic solutions and creates one of the most comprehensive, innovative offerings in the industry.

According to NuVasive, the combined company will have an advanced commercial scale and portfolio of clinically-proven solutions. It will be supported by strong commercial and clinical professional development teams leading to better customer service. The companies noted that Globus Medical and NuVasive’s products, customers, and geographic footprint are highly complementary. The combined company will thus serve more surgeons with varied solutions, covering more geographies globally. It will create huge growth opportunities over the long term.

In terms of financial benefits, the combined company aims to deliver a mid-30% EBITDA profile over the next three years, which includes approximately $170 million in identified cost synergies.

On the flip side, NuVasive exited the fourth quarter of 2022 on a dismal note, with earnings and revenues missing the Zacks Consensus Estimate. The company’s performance continues to be challenged by inflationary costs, supply chain disruptions, volatility in foreign exchange rates and persistent COVID-led impact. Contraction in both margins is discouraging too. In the fourth quarter, gross profit fell 1.8% year over year. The gross margin contracted 207 basis points (bps) to 70%.

Overall adjusted operating profit was down 8.2% from the year-ago figure. Adjusted operating margin saw a 99 bps contraction year over year to 9.8%. The increase in operating expenses was primarily driven by variable expenses on higher net sales, freight costs and continued R&D investments to advance core spine and enabling technologies product portfolios. Further, stiff competition and pricing pressure continue to pose challenges as well.

NuVasive exited the fourth quarter of 2022 with cash and cash equivalents of $249.5 million, compared with $238 million at the end of the third quarter of 2022. Meanwhile, the company reported $892 million in debt on its balance sheet at the end of the fourth quarter with $448 million as short-term debt. This debt level exceeded the short-term cash in hand, which is worrisome.

Key Picks

Some better-ranked stocks in the overall healthcare sector include TerrAscend Corp. and Akerna Corp. . TerrAscend sports a Zacks Rank #1 (Strong Buy), while Akerna carries a Zack Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Estimates for TerrAscend’s 2023 bottom line have remained constant at a loss of 10 cents per share in the past 30 days. Shares of TerrAscend have declined 70.6% in the past year.

TerrAscend’s earnings beat estimates in one of the last three quarters and missed the mark in the other two, the average negative surprise being 136.11%.

In the last reported quarter, TRSSF delivered an earnings surprise of 216.67%.

Akerna’s stock has declined 95.7% in the past year. Its estimates for 2023 have remained constant at a loss of $1.91 per share over the past 30 days.

Akerna missed earnings estimates in each of the last four quarters, delivering a negative earnings surprise of 15.49%, on average. In the last reported quarter, KERN delivered a negative earnings surprise of 13.33%.

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