Here's Why You Should Hold on to Integra (IART) Stock for Now
Integra LifeSciences Holdings Corporation IART is gaining from strength in the Codman Specialty Surgical (“CSS”) business. The company ended the third quarter of 2021 with better-than-expected results. Sales from the recently introduced CereLink ICP Monitor System buoy optimism. The phased market release of the Aurora Surgiscope also appears promising. However, escalating expenses and COVID-led headwinds raise apprehension.
Over the past year, the Zacks Rank #3 (Hold) stock has gained 22.9%, outperforming the 13.6% growth of the industry. This compares to the 29.9% rise of the S&P 500.
The renowned medical device company has a market capitalization of $5.66 billion. Its third-quarter 2021 earnings surpassed the Zacks Consensus Estimate by 19.4%.
Over the past five years, the company registered earnings growth of 8.9%, ahead of the industry’s 3.3% rise and the S&P 500’s 2.8% increase. The company’s long-term projected growth of 13.2% compares with the industry’s growth projection of 15.6% and the S&P 500’s projected 11.7% growth.
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Let’s delve deeper.
Factors At Play
Q3 Upsides: Integra exited the third quarter of 2021 on a bullish note with better-than-expected earnings and revenues. The year-over-year growth in the CSS segment buoys optimism. Ongoing sales recovery across geographies and product lines looks encouraging as well. Strong organic growth in neurosurgery, instruments, wound reconstruction and private label businesses in the reported quarter compared to 2020 and 2019 is an added advantage. Further, the company has raised its EPS guidance for 2021.
CSS Holds Strong Prospects: CSS segment revenues grew 7.2% year over year on a reported basis (organically, up 8%) in the third quarter of 2021. This improvement can be attributed to 6% growth in global neurosurgery as well as 15% growth in instruments year over year on an organic basis. Instruments sales benefited from a robust recovery in order demand in the reported quarter. Meanwhile, strength in Neurosurgery was broad-based, including sales of the newly-launched CereLink ICP Monitor System. Geographically, sales in the CSS segment climbed about 8%, both in and outside the United States, compared to the previous year.
Strong Focus on Portfolio Optimization: We are upbeat about the company’s newly-launched CereLink in the United States and Europe in the third quarter. CereLink raises the bar in ICP monitoring to enhance accuracy, usability and advanced data presentation. The company also initiated a phased market release of the Aurora Surgiscope to a select group of key opinion leaders for clinical evaluation during the third quarter. Aurora is a minimally-invasive surgical solution with integrated visualization and capabilities used to perform neurosurgery. Regarding ACell, Integra put forth strategies like increasing training and surgeon education programs as well as adding sales resources to select territories, to drive robust long-term growth.
Downsides
Escalating Expenses: During the third quarter, Integra’s selling, general and administrative (SG&A) expenses climbed 3.9%, whereas research and development (R&D) expenses rose 32.7%. These mounting operating expenses are building significant pressure on the company’s bottom line, leading to a contraction in both margins.
COVID-Led Headwinds: Although Integra’s performance in the first half of 2021 reflected a strong recovery from COVID-related impact, the emerging new and more contagious strain of the virus might again disrupt the business. During its earnings call for third-quarter 2021, the company noted that the impact of the lethal Delta variant of COVID-19 and hospital staffing shortages resulted in procedural deferrals in parts of the United States, Europe and Australia during the reported quarter.
Natural Calamities Might Hamper Business Process: Many of Integra’s manufacturing, development or research facilities are vulnerable to natural disasters or unwanted events, which depending on the extent of its severity, might force the company to cease development and manufacturing of some or all of its products. Although the company maintains property damage and business interruption insurance coverage for these facilities, management fears insurance might not cover all losses in the event of such dire circumstances.
Estimate Trend
Integra has been witnessing a positive estimate revision trend for 2021. Over the past 90 days, the Zacks Consensus Estimate for its earnings has moved north by 4.7% to $3.15.
The Zacks Consensus Estimate for fourth-quarter 2021 revenues is pegged at $403.3 million, suggesting a 3.8% rise from the year-ago reported number.
Other Key Picks
A few better-ranked stocks in the broader medical space are AMN Healthcare Services, Inc. AMN, Omnicell, Inc. OMCL and NextGen Healthcare, Inc. NXGN.
AMN Healthcare, carrying a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 16.2%. The company surpassed earnings estimates in the trailing four quarters, delivering an average surprise of 19.5%.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
AMN Healthcare has outperformed its industry over the past year. AMN has gained 75.6% against the industry’s 47.8% fall.
Omnicell, carrying a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 16%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 17.4%, on average.
Omnicell has outperformed its industry over the past year. OMCL has gained 71.9% against the 36.2% industry decline.
NextGen, sporting a Zacks Rank #2, has a long-term earnings growth rate of 8.5%. The company surpassed earnings estimates in the trailing four quarters, delivering an average surprise of 16%.
NextGen has outperformed the industry it belongs to in the past year. NXGN has declined 5.5% versus the industry’s 36.2% fall.
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