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Here's Why You Should Hold Wright Medical (WMGI) Stock Now

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Red Hat (RHT) Tops Q2 Earnings Estimates

Red Hat (RHT) delivered earnings and revenue surprises of 4.94% and -0.58%, respectively, for the quarter ended August 2018. Do the numbers hold clues to what lies ahead for the stock?

With a market capitalization of approximately $2.75 billion, Wright Medical Group N.V. WMGI has been riding high on growing orthopedic market, launch of new products like PERFORM Reversed glenoid, ORTHOLOC 3Di and the SIMPLICITI shoulder system.

However, pricing pressure continues to trouble Wright Medical. Higher costs related to product launch and re-building infrastructure is expected to keep margins under pressure. Problems associated with distributor are another headwind.

For fiscal 2018, the Zacks Consensus Estimate for revenues is currently pegged at $810.6 million, reflecting an increase of 8.8% year over year. However, the Zacks Consensus Estimate for 2018 is pegged at a loss of 14 cents. The stock has a Zacks Rank #3 (Hold).

Here we take a quick look at the major factors that have been plaguing Wright Medical and discuss the prospects that ensure near-term recovery.

Wright Medical Group N.V. Price and Consensus

 

Wright Medical Group N.V. Price and Consensus | Wright Medical Group N.V. Quote

For-Ex Woes Plaguing Wright Medical

Wright Medical derives a significant portion of revenues from international operations, which is affected by fluctuations in foreign currency exchange rates. Foreign-exchange woes have been materially impacting the company’s international revenues and gross margin since the last two quarters.

Why Should You Hold?

Wright Medical’s international net sales are expected to grow in the high single-digits on a constant-currency basis, driven by consistent performance in biologics and acceleration of upper extremities growth in 2018.

Further, the company has significant presence in key emerging markets like Asia, which further enhances its prospects. The overall outlook of the global orthopedic devices market is looking up. Per data from technavio, the global niche market is expected to witness a CAGR of around 4% by 2020.

Wright Medical’s top-line growth will be supported by the series of new product launches, including internally developed products and those from acquisitions. The company is also investing in medical education and training programs to update doctors regarding the benefits of the newly launched offerings.

Of the recent developments, the ongoing launch of the PERFORM Reversed glenoid along with the expanded BLUEPRINT surgical planning modules deserves a special mention. Furthermore, Wright Medical launched INVISION Total Ankle Revision System in 2017. This is the first system developed for total ankle revision arthroplasty. Per management, PERFORM Reversed launch will boost revenues.

Price Performance

Shares of Wright Medical have outperformed the industry in the past six months. Notably, the company’s shares have gained 14.5%, againstthe industry's decline of 4.2%. The current level is also higher than the S&P 500 index's riseof 3.3%.

Key Picks

A few better-ranked stocks in the broader medical space are Genomic Health GHDX, Abiomed ABMD and Stryker Corporation SYK.

Genomic Health has an expected earnings growth rate of 187.5% for the current quarter. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Abiomed has a projected long-term earnings growth rate of 27%. The stock sports a Zacks Rank #1.

Stryker has a projected long-term earnings growth rate of 9.7%. The stock carries a Zacks Rank #2 (Buy).

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