Avanos Medical, Inc. (AVNS Quick QuoteAVNS - Free Report) is well-poised for growth in the coming quarters, courtesy of its impressive product line. The optimism led by a solid fourth-quarter 2023 performance and continued focus on its research and development (R&D) are expected to contribute further. However, stiff competition and macroeconomic concerns persist.

Over the past year, this Zacks Rank #3 (Hold) stock has lost 33.9% against the 9.8% rise of the industry and 27.6% growth of the S&P 500 Composite.

The renowned medical device solutions provider has a market capitalization of $905.1 million. The company projects 12.4% growth for the next five years and expects to maintain its strong performance. Avanos’ earnings yield of 7% compares favorably against the industry’s negative yield.

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Let’s delve deeper.

Product Portfolio: Avanos’ robust product suite raises our optimism. Digestive Health is a portfolio of products that includes its MIC-KEY enteral feeding tubes, Corpak patient feeding solutions and NeoMed neonatal and pediatric feeding solutions. Pain Management and Recovery is a portfolio of non-opioid pain solutions including Surgical pain and recovery products and Interventional pain solutions.

On fourth-quarter 2023 earnings call in February, management confirmed that its newly acquired Trident product line produced results in line with the company’s expectations.

Focus on R&D: We are upbeat about Avanos’ continued focus on its R&D wing to commercialize new products and enhance the effectiveness, reliability and safety of its existing products. The company holds numerous patents and has numerous patent applications pending in the United States and other countries that relate to the technology used in many of its products.

Strong Q4 Results: Avanos’ robust fourth-quarter 2023 results buoy optimism. The company saw continued strength in the Digestive Health segment in the quarter. Robust growth in NeoMed and CORTRAK was also recorded. On the earnings call, management was also upbeat about the U.S. market launch of its Trident product line and scaling up manufacturing capacity in its Toronto facility.

Downsides

Macroeconomic Concerns: Avanos is grappling with significant macroeconomic headwinds, notably inflationary pressures stemming from widespread economic factors, global supply chain disruptions, and labor shortages. These conditions have escalated manufacturing and operating costs, affecting Avanos' financial health, with concerns that these pressures will persist. The company's ability to offset these costs through pricing adjustments is uncertain, risking its gross margins and profitability.

Competition: Avanos faces significant competition in both the United States and international markets. Competitors of its products are fragmented by particular product categories and the individual markets for these products are also highly competitive. Such an intensely competitive landscape is likely to put pressure on margins.

Estimate Trend

Avanos is witnessing a negative estimate revision trend for 2024. In the past 90 days, the Zacks Consensus Estimate for its earnings has moved 9.2% south to $1.38 per share.

The Zacks Consensus Estimate for the company’s first-quarter 2024 revenues is pegged at $163.4 million, suggesting a 14.8% decline from the year-ago quarter’s reported number.

Key Picks

Some better-ranked stocks in the broader medical space are DaVita Inc. (DVA Quick QuoteDVA - Free Report) , Cardinal Health, Inc. (CAH Quick QuoteCAH - Free Report) and Cencora, Inc. (COR Quick QuoteCOR - Free Report) .

DaVita, flaunting a Zacks Rank #1 (Strong Buy) at present, has an estimated long-term growth rate of 12.1%. DVA’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 35.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.

DaVita’s shares have gained 68.7% compared with the industry’s 23.2% rise in the past year.

Cardinal Health, carrying a Zacks Rank of 2 (Buy) at present, has an estimated long-term growth rate of 14.2%. CAH’s earnings surpassed estimates in each of the trailing four quarters, with the average being 15.6%.

Cardinal Health has gained 46.1% compared with the industry’s 11.8% rise in the past year.

Cencora, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 9.8%. COR’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 6.7%.

Cencora’s shares have rallied 49.7% compared with the industry’s 5.2% rise in the past year.