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Here's Why You Should Retain CONMED (CNMD) Stock for Now

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CONMED Corporation (CNMD - Free Report) is well poised for growth in the coming quarters, courtesy of its broad product spectrum. The optimism, led by the solid first-quarter 2023 performance and a potential General Surgery, is expected to contribute further. However, headwinds from regulatory requirements and data security threats persist.

This Zacks Rank #3 (Hold) company’s shares have risen 53.4% year to date compared with the industry’s 13.8% growth. The S&P 500 Index has gained 15.7% during the same time frame.

CONMED, the renowned global medical products manufacturer specializing in surgical instruments and devices, has a market capitalization of $4.09 billion. The company projects 18% growth over the next five years and expects to maintain its strong performance going forward.

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Its earnings surpassed estimates in two of the trailing four quarters, missed once and met in the other, delivering a negative average surprise of 10.54%.

Let’s delve deeper.

Potential in General Surgery: The segment consists of a complete line of endo-mechanical instrumentation for minimally invasive laparoscopic and gastrointestinal procedures, a line of cardiac monitoring products as well as electrosurgical generators and related instruments.

CONMED’s unique products and solutions within the General Surgery segment have been providing a competitive edge in the MedTech space. One of these products, the Anchor Tissue Retrieval bag deserves a special mention. It is one of the major platforms in the company’s specimen bag portfolio.

Broad Product Spectrum: CONMED offers a broad line of surgical products, including several new devices in the Orthopedic, Laparoscopic, Robotic, Open Surgery, Gastroenterology, Pulmonary and Cardiology sections.

Products like Hi-Fi Tape and Hi-Fi suture interface are a critical component of repair security in the rotator cuff repair space.

Other notable offerings include the MicroFree platform in Orthopedics, the TruShot, the Y-Knot Pro and the CRYSTALVIEW Pump. The Anchor Tissue Retrieval bag is a unique product under the General Surgery arm.

Solid Recurring Revenue Base: Approximately 80% of CONMED’s revenues are recurring, derived from the sale of disposable single-use products. The remaining 20% comes from sales of capital equipment (such as powered drills and saws for surgery, electrosurgical generators, video-imaging cameras, fluid control systems and surgical hand-pieces). This, in turn, creates demand for complementary single-use items.

Hospitals and clinics are expanding the use of single-use, disposable products. This endeavor is aimed at reducing expenses related to sterilizing surgical instruments and products following surgery.

CONMED’s revenues totaled $295.5 million in first-quarter 2023, up 21.9% year over year. Additional sales from newly-acquired businesses contributed approximately 570 basis points of growth.

Using one-time disposable products also lowers the risk of patient infection and reduces post-operative care cost, which is no longer covered by Medicare.

Downsides

Regulatory Requirements: Substantially, all CONMED products are classified as class II medical devices, subject to regulations of numerous agencies and legislative bodies worldwide. As a manufacturer of medical devices, the company’s manufacturing processes and facilities are subject to on-site inspection and constant review by the FDA for compliance with the Quality System Regulations.

Dismal margins: Although CONMED recorded strong growth across all segments in the first quarter, inflationary pressures continued to hurt margins. Gross margin declined 350 basis points to 52.6%. The company recorded a year-over-year decline of 43.3% in operating income during the quarter. Higher costs and expenses are likely to continue for the rest of 2023.

Estimate Trend

CONMED is witnessing a positive estimate revision trend for 2023. In the past 60 days, the Zacks Consensus Estimate for earnings has improved from $3.40 per share to $3.41.

The same for the company’s second-quarter revenues is pegged at $305.9 million, indicating a 10.4% improvement from the year-ago quarter’s reported number.

Stocks to Consider

Some better-ranked stocks for investors interested in the medical sector are Alcon (ALC - Free Report) , DexCom (DXCM - Free Report) and Hologic (HOLX - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Alcon has an estimated long-term growth rate of 14.9%. Its earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 8.85%.

ALC’s shares have rallied 17.7% year to date compared with the industry’s 5.9% growth.

DexCom has an estimated long-term growth rate of 40.4%. Its earnings surpassed estimates in three of the trailing four quarters and met the same once, delivering an average surprise of 15.19%.

DXCM’s shares have risen 11.9% year to date compared with the industry’s 5.9% growth.

Hologic has an estimated earnings growth rate of 4.1% for fiscal 2024. Its earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 27.32%.

HOLX’s shares have risen 3.6% year to date compared with the industry’s 5.9% growth.


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