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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 2021 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 gained 41.2% compared with 13.6% growth of the industry and 41.5% rise of the S&P 500 composite.
The renowned medical device solutions provider has a market capitalization of $1.89 billion. The company projects 6.3% growth for the next five years and expects to maintain its strong performance. Further, it has delivered an earnings surprise of 91.89% for the past four quarters, on average.
Let’s delve deeper.
Strong Q1 Results: Avanos’ robust first-quarter 2021 results buoy optimism. The company continues to gain from its core segment, Chronic Care. Also, CORPAK and NeoMed products contributed strongly to its earnings during the quarter. Further, robust international performance was driven by new channel partnerships and CORTRAK sales in the Asia-Pacific and Middle East regions, along with gains in market shares across Europe.
Sales through Leiters were robust primarily due to a partnership with Leiters which continues to benefit customers as a pre-fill option. The expansion in adjusted operating margin bodes well for the stock.
Product Portfolio: Avanos’ robust product suite raises our optimism. The company’s COOLIEF registered strong growth in March while a double-digit growth of Game Ready boosted the Pain Management arm over the past few months. Further, during the quarter, the company recorded growing market adoption and share of both the CORTRAK and NeoMed portfolios. Notably, the NeoMed portfolio growth came from the continued conversions to the company’s ENFit technology. Avanos’ 80-Watt COOLIEF RF generator has been receiving favorable response from physicians.
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, and associated new product developments. It is also expanding its portfolio with customer-preferred product enhancements.
Additionally, in the recent past, the company made a $7-million investment in NeoMed Inc., Summit Medical and Game Ready. The company is already working on integrating the Game Ready, NeoMed and Summit into its IT system to gain operational efficiencies.
Foreign Exchange Woes: Avanos transacts business in many foreign currencies, and is 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 sell its products, its U.S.-dollar-reported net sales and income will decrease.
Competition: Avanos faces significant competition in both U.S. and international markets from biggies like Boston Scientific Corporation BSX. Such an intensely competitive landscape is likely to put pressure on margins.
Avanos is witnessing a positive estimate revision trend for 2021. In the past 90 days, the Zacks Consensus Estimate for its earnings has moved 0.9% north to $1.16.
The Zacks Consensus Estimate for the company’s second-quarter 2021 revenues is pegged at $181.8 million, suggesting an 11.1% rise from the year-ago quarter’s reported number.
A couple of better-ranked stocks from the broader medical space are Illumina, Inc. ILMN and DaVita Inc. DVA, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Illumina’s long-term earnings growth rate is estimated at 7%.
DaVita’s long-term earnings growth rate is estimated at 14.4%.
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