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Here's Why You Should Hold on to Avanos (AVNS) Stock For Now

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·4 min read
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Avanos Medical, Inc. AVNS is well poised for growth in the coming quarters, backed by its impressive product line. A solid first-quarter 2022 performance, along with continued focus on its Research and Development (R&D), are expected to contribute further. However, stiff competition and foreign exchange headwinds persist.

Over the past year, this Zacks Rank #3 (Hold) stock has lost 29.9% compared with 16.8% fall of the industry and 6.3% decline of the S&P 500 composite.

The renowned medical device solutions provider has a market capitalization of $1.32 billion. The company projects 44.4% growth for 2022 and expects to maintain its strong performance. Avanos’ earnings surpassed the Zacks Consensus Estimate in two of the trailing four quarters and missed the same in the other two, the average surprise being 1.8%.

Zacks Investment Research
Zacks Investment Research


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Let’s delve deeper.

Product Portfolio: Avanos’ robust product suite raises our optimism. During its first-quarter 2022 earnings call in May, Avanos confirmed that it continued to see strong growth in its digestive health business, with first-quarter growth being more than 6%. Digestive health portfolio’s NeoMed grew 32% from the continuation of conversions to Avanos’ ENFit technology despite supply constraints. Avanos also confirmed that its pain management arm witnessed growth of more than 6% compared with the prior-year period, excluding the contribution of OrthogenRx, Inc.

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 the existing ones. The company has been investing to expand the indications for use of its pain products with clinical research and studies, as well as associated new product developments. It is also expanding its portfolio with customer-preferred product enhancements.

Avanos’ buyout of NeoMed, Inc. was a significant addition to its Digestive health products portfolio. Avanos’ acquisition of OrthogenRx (in January) is expected to enhance its chronic pain portfolio.

Strong Q1 Results: Avanos’ robust first-quarter 2022 results buoy optimism. The company saw year-over-year improvement in the overall top and bottom lines. Strength exhibited by Avanos’ core Pain Management segment, along with improvements in both Acute pain and Interventional Pain solutions, is encouraging. The continued strong demand for Digestive Health products and robust sales of NeoMed are promising. Sustained robust growth for Coolief pain therapy, Game Ready cold and compression therapy systems, and ambIT pumps also raises optimism. Expansion of gross margin bodes well.

Downsides

Foreign Exchange Woes: Avanos carries out business transactions in many foreign currencies, and is thus subject to the effects of foreign exchange fluctuations. The company’s financial statements are reported in U.S. dollars, with international transactions being translated into the same. If the U.S. dollar strengthens in relation to the currencies of other countries where the company sells its products, its U.S.-dollar-reported net sales and income will decrease.

Competition: Avanos faces significant competition in both the United States and international markets. Competitors for its products are fragmented by particular product category 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 positive estimate revision trend for 2022. In the past 90 days, the Zacks Consensus Estimate for its earnings has moved 0.6% north to $1.66.

The Zacks Consensus Estimate for the company’s second-quarter 2022 revenues is pegged at $208.6 million, suggesting an 11.9% rise from the year-ago quarter’s reported number.

Key Picks

Some better-ranked stocks in the broader medical space are AMN Healthcare Services, Inc. AMN, HealthEquity, Inc. HQY and Masimo Corporation MASI.

AMN Healthcare, having a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 1.1%. AMN’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average beat being 15.6%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AMN Healthcare has gained 2.9% against the industry’s 64.2% fall in the past year.

HealthEquity, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 19.4%. HQY’s earnings surpassed estimates in two of the trailing four quarters and missed the same in the other two, the average beat being 1.4%.

HealthEquity has lost 23.3% compared with the industry’s 64.2% fall over the past year.

Masimo, carrying a Zacks Rank #2 at present, has an earnings yield of 3.3% against the industry’s negative yield. MASI’s earnings surpassed estimates in the trailing four quarters, the average beat being 4.4%.

Masimo has lost 32.6% compared with the industry’s 16.8% fall over the past year.


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