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International Business Aids NuVasive, Pricing Woe Remains

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On Feb 19, we issued an updated research report on NuVasive, Inc. (NUVA - Free Report) . While the strong Spine market spells huge scope for the stock, pricing and payers pressure come as major headwinds. The stock carries a Zacks Rank #3 (Hold).

Ahead of fourth-quarter 2017 earnings release (scheduled for Feb 26, 2018), we are upbeat about NuVasive’s consistent top-line gains from its international business. Last quarter, the company’s international business exceeded its expectations by recording 46% growth at CER on continued strong demand for the company’s spine technology, particularly in the key markets of Italy, Germany and Japan. Overall, the company believes that its share in the international market will rise to double-digits over the next several years. Banking on a stellar first-half 2017 performance, the company raised its international business growth guidance to more than 20% for the full year.

NuVasive recently adopted a few strategies to drive its adjusted operating margin to 25% post reaching the $1-billion revenue target by the end of 2017. This includes the company’s plans to aptly align its technological expertise with marketing strategies in order to enhance product development and commercialization capability. Also, NuVasive plans to merge its U.S. Commercial and International sales functions into a global commercial organization. This apart, the company intends to alter its global operations to boost efficiencies through a combination of manufacturing, supply chain, information technology (IT), regulatory affairs and quality assurance (RA/QA).

We are also encouraged by the company’s receipt of certain FDA approvals of late. In October 2017, NuVasive was granted an expanded 510(k) clearance from the FDA for its TLX interbody system. Notably, TLX has been designed for a minimally-invasive spine surgery approach. In the same month, the company announced another expanded FDA 510(k) nod for its advanced magnetic and non-invasive limb lengthening technology called PRECICE. Earlier in September, NuVasive also received an FDA approval to use the redesigned MAGEC system with its RELINE Small Stature system.

On the flip side, pricing pressure continues to be a major concern for NuVasive as the company has been facing declining product prices due to intensifying competition in the spine market. Moreover, this downtrend is experienced by hospital customers from managed care organizations, insurance providers as well as other third-party payers. Further, continuous contraction in gross margin is a spoiler.

 

This leading medical device company has underperformed the broader industry over the past six months. The stock has lost 26.8% against the broader industry’s 6.5% rise.

Zacks Rank & Key Picks

NuVasive carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader medical space are Centene Corporation (CNC - Free Report) , Haemonetics Corporation (HAE - Free Report) and HCA Healthcare, Inc. (HCA - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Centene has a projected long-term growth rate of 14.4%. In the past six months, the stock has returned 16.3%.

Haemonetics has an expected long-term growth rate of 10.8%. Last month, the stock has returned 4.9%.

HCA Healthcare has an expected long-term growth rate of 11.5%. The stock has returned 8.7% in the last 30 days.

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