CONMED Corporation (CNMD - Free Report) is well poised for growth backed by broad product portfolio, strong international sales and solid gain from core units — Orthopedic Surgery and General Surgery. However, forex remains a concern.
Shares of CONMED have lost 22.1%, compared with the industry’s decline of 15.8% on a year-to-date basis. Meanwhile, the S&P 500 Index gained 2.1% in same timeframe.
The company, with a market capitalization of $1.90 billion, is a major medical products manufacturer specializing in surgical instruments and devices for minimally invasive procedures and monitoring. It anticipates earnings to improve 8.7% over the next five years. Moreover, it has a trailing four-quarter positive earnings surprise of 8.4%, on average.
Let’s take a closer look at the factors that substantiate the company’s Zacks Rank #3 (Hold).
What’s Deterring the Stock?
Foreign exchange movements are unfavorably impacting the company’s results. CONMED derives significant portion of revenues from international operations.
The strong U.S. dollar will continue to limit sales growth. Per the fourth-quarter 2019 earnings call, the negative impact to sales from forex is anticipated between 120 basis points (bps) and 150 bps for 2020.
What’s Favoring the Stock?
CONMED’s General Surgery segment’s solid performance continues to bolster the top line. The segment’s unique products and solutions provide the company a competitive edge in the MedTech space. Among unique products of General Surgery, the Anchor Tissue Retrieval bag deserves a mention.
In the first quarter, revenues in the segment grossed $114.7 million, up 9.2% year over year. Per management, growth was driven by the product portfolio’s strong performance.
Moreover, CONMED boasts a broad product portfolio that enables it to drive revenue growth over a considerable period. Additionally, product innovations will not only fortify product portfolio but also enhance overall performance.
Further, the company’s continued focus on Research and Development (R&D) helps in instilling investor confidence. R&D expenses for the first quarter were $11 million or 4.7% of total sales. According to the fourth-quarter 2019 earnings call, CONMED’s management confirmed that it will continue to increase investments in R&D, which is likely to be 4.5-5% of net sales in 2020.
The company is reaping benefits from the improving trend of utilizing minimally invasive techniques as significant percentage of its products were created for these procedures.
In fact, a research report by Allied Market Research suggests that the global minimally invasive surgical instruments market is estimated to reach $52.98 billion by 2023 at a CAGR of 8.7% from 2017 to 2023. We believe solid market trends like these would strengthen CONMED’s presence in the niche space.
Which Way are Estimates Headed?
For 2020, the Zacks Consensus Estimate for revenues is pegged at $780.3 million, indicating a decline of 18.3% from the year-ago period. The same for earnings stands at $25 cents per share, suggesting a decrease of 90.5% from the year-ago reported figure.
Stocks to Consider
Some better-ranked stocks from the broader medical space include West Pharmaceutical Services, Inc. (WST - Free Report) , Quest Diagnostics Incorporated (DGX - Free Report) and Laboratory Corporation of America Holdings (LH - Free Report) . While West Pharmaceutical and Quest Diagnostics sport a Zacks Rank #1 (Strong Buy), Laboratory Corporation carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
West Pharmaceutical has a projected long-term earnings growth rate of 9.2%.
Quest Diagnostics has an estimated long-term earnings growth rate of 7.6%.
Laboratory Corporation has an estimated long-term earnings growth rate of 6.1%.
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