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Globus Medical (GMED) Gains From NuVasive Buyout, Innovation

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Globus Medical (GMED - Free Report) continues to gain from surging demand for its Musculoskeletal Solutions products. The company is expanding its footprint in the overseas markets through direct and distributor sales force. The stock carries a Zacks Rank #2 (Buy).

Globus Medical is gaining market share in the musculoskeletal solutions space, banking on the strong performance of its implantable devices, biologics, accessories and unique surgical instruments used in an expansive range of spinal, orthopedic and neurosurgical procedures.

The company is particularly seeing notable gains across its product portfolio in expandables, biologics, MIS screws, 3D printed implants and cervical offerings. Over the past couple of quarters, this business has been registering above-market growth, driven by competitive rep recruiting from prior quarters and robotic pull-through. In the second quarter of 2023, Globus Medical launched three new products, REFLECT, MARVEL and Ossifuse.

The company continues to make significant progress in launching its prone lateral patient positioning system. In the second half of 2023 and in 2024, the company anticipates a strong lineup of product launches throughout the Musculoskeletal portfolio.

Globus Medical, in September 2023, completed the earlier-announced merger with NuVasive. The combined company is expected to create a global musculoskeletal company focused on rapid innovation, addressing unmet clinical needs and improving offerings for surgeons and patients. The combination capitalizes on GMED’s complementary commercial organization and should allow the company to accelerate its globalization strategies to increase customer reach and strengthen surgeon relationships.

The combined company expects to bring best-in-class technologies to create a differentiated and comprehensive procedural solution offering as part of its approach to address unmet clinical needs and support surgeons and patients. According to Globus Medical, both companies’ operational footprints are highly complementary, allowing them to better leverage each other's manufacturing and supply chain resources to increase internal production while reducing the amount of capital investment required as a standalone entity. This way, they can redirect investment and improve cash flow.

On the flip side, like other industry players, Globus Medical is currently grappling with interest rate fluctuations, increases in inflation and financial market volatility. These factors are affecting the company’s operations and financial performance. Global inflation, in particular, has led to a significant rise in the cost of raw materials for the company. In the second quarter, the company incurred an 11.7% rise in cost of goods sold. Going by our model, in 2023, Globus Medical is expected to incur a 9.9% rise in the cost of goods sold from the previous year.

These macroeconomic factors, along with the rising wage and raw material costs, are also leading to a significant escalation in the company’s operating expenses. SG&A expenses in the reported quarter were up 12.5% from the year-ago quarter. Research and development expenses increased 22.7% year over year.

Meanwhile, the presence of a large number of players has made the musculoskeletal devices market intensely competitive. The orthopedic industry in particular 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.

Over the past year, shares of GMED have plunged 12.2% compared with the industry’s 1.2% decline.

Other Key Picks

Some other top-ranked stocks in the broader medical space are Cardinal Health (CAH - Free Report) , Haemonetics (HAE - Free Report) and Align Technology (ALGN - Free Report) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cardinal Health stock has risen 35% in the past year. Earnings estimates for the company have increased from $6.65 to $6.66 for 2023 and have remained constant at $7.56 for 2024 in the past 30 days.

CAH’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 16.03%. In the last reported quarter, it posted an earnings surprise of 4.73%.

Estimates for Haemonetics’ 2023 earnings per share have remained constant at $3.82 in the past 30 days. Shares of the company have increased 14.6% in the past year against the industry’s decline of 5.4%.

HAE’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 19.39%. In the last reported quarter, it posted an earnings surprise of 38.16%.

Estimates for Align Technology’s 2023 earnings have moved up from $8.77 to $8.78 per share in the past 30 days. Shares of the company have increased 32.9% in the past year compared with the industry’s growth of 23.2%.

ALGN’s earnings beat estimates in three of the trailing four quarters and missed in one. In the last reported quarter, it posted an earnings surprise of 9.90%.

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