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CONMED Corporation CNMD is well poised for growth backed by a broad product portfolio and solid potential from core units — Orthopedic Surgery and General Surgery. However, tough competition remains a concern.
Over the past three months, shares of CONMED have gained 25.7% compared with the industry’s growth of 6.5%.
The company, with a market capitalization of $2.96 billion, is a major medical products manufacturer specializing in surgical instruments and devices for minimally-invasive procedures and monitoring. It anticipates earnings improvement of 10.8% over the next five years. Moreover, it has a trailing four-quarter earnings surprise of 90.5%, on average.
Let’s take a closer look at the factors that substantiate the company’s Zacks Rank #3 (Hold).
Consistent Strength in General Surgery: General Surgery consists of a complete line of endo-mechanical instrumentation for minimally-invasive laparoscopic and gastrointestinal procedures, a line of cardiac monitoring products as well as electrosurgical generators and related instruments. CONMED’s unique products and solutions within the General Surgery segment have been providing the company a competitive edge in the MedTech space. Of the most unique products under General Surgery, the Anchor Tissue Retrieval bag deserves a mention.
In the third quarter of 2020, revenues at the segment amounted to $135.6 million, up 10% year over year. Domestically, General Surgery sales rose 11.3% year over year and international sales grew 7.3%.
Continued R&D Focus: CONMED’s steady focus on innovation instills investor confidence. By the end of the fourth quarter of 2018, management at CONMED had announced that solid organic R&D pipeline and product innovations will provide CONMED a competitive edge. Additionally, the company’s surging R&D expenses reflect focus on innovation.
In the third quarter of 2020, research and development expenses were 4.2% of total sales.
Broad Product Spectrum: CONMED offers a broad line of surgical products. In the recent past, CONMED introduced the MicroFree platform in Orthopedics, the TruShot, the Y-Knot Pro and the CRYSTALVIEW Pump. The expanded product line-up can accelerate the company’stopline. Products like the IM8000 surgical visualization system and the Edge Ablation system will drive top-line growth going forward.
Furthermore, CONMED’s AssistArm technology delivers unique limb positioning techniques. Other products including 3 sports medicine products, 3 endomechanical offerings, an electrosurgical council and a new 2D Arthroscopy video system areworth a mention.
The company saw continued solid demand for AirSeal and Buffalo Filter product lines throughout the third quarter. This was driven by enhanced clinical training, improved surgical safety protocols and increasing access to medical facilities. Both these product lines saw strong growth during the quarter as hospitals around the world focused on improving operating rooms safety.
What’s Deterring the Stock?
Cut-throat Competition in MedTech: CONMED operates in a highly competitive environment,including the likes of Johnson & Johnson, Medtronic, Smith & Nephew and Stryker Corporation. These organizations may have greater resources and larger research and development budgets compared to CONMED. Furthermore, CONMED lags the larger orthopedic companies in product bundling arrangements, which lend the companies a competitive edge.
Which Way are Estimates Headed?
For 2020, the Zacks Consensus Estimate for revenues is pegged at $875.8 million, indicating a decline of 8.3% from the year-ago period. The same for earnings stands at $2.13 per share, suggesting a decrease of 19.3% from the year-ago reported figure.
Some better-ranked stocks from the broader medical space include Align Technology ALGN, Cardinal Health CAH and Thermo Fisher Scientific TMO, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Align Technology has a projected long-term earnings growth rate of 18.3%.
Cardinal Health has a projected long-term earnings growth rate of 5.5%.
Thermo Fisher has an estimated long-term earnings growth rate of 18%.
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