Globus Medical, Inc. GMED has been gaining from robust performance on the international front. The company’s latest product launches, including the HEDRON P, instill optimism. Impressive U.S. spine sales growth in the quarter under review is an added positive. However, constant pricing pressure and foreign exchange headwinds do not bode well.
In the past year, this Zacks Rank #3 (Hold) stock has declined 13.2% against a 16.5% fall of the industry and a 3.7% drop of the S&P 500 composite.
The renowned medical device company has a market capitalization of $6.3 billion. Its earnings surpassed estimates in three of the trailing four quarters and missed in one, the average surprise being 7.2%.
In the past five years, the company’s shares have gained 11.1% compared with the industry’s 8.3% rise and the S&P 500’s 13.4% increase. The company’s long-term expected growth rate is estimated at 11.2% compared with the industry’s expectation of a 14.7% increase and the S&P 500’s estimated 10.8% rise.
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Let’s delve deeper.
Factors at Play
Q1 Upsides: Globus Medical’s first-quarter results reflect modest revenue growth against a difficult prior-year comparison. Following a lackluster January performance, February showed sequential improvement, and March became the company’s highest sales month on record. U.S. spine rose 3% in the quarter under review. Robotic procedures and implant pull-through continued to accelerate, growing 27% year over year and surpassing approximately 31,000 robotic procedures performed since launch.
Steady Pace of Product Development: Globus Medical is making consistent efforts to innovate plus research and develop, in line with its business strategy to focus on integrated product development. Per the company, its team-oriented approach, active surgeon input and demonstrated capabilities position it to maintain a rapid rate of product launches. In the first quarter, the company added the HEDRON P, a 3D printed articulating lumbar interbody spacer, to its existing HEDRON portfolio. This launch also expands the company’s articulating spacer offering, including SIGNATURE and ALTERA.
International Business Holds Potential: Globus Medical’s international revenues currently account for 14.5% of the company’s total sales. During the first quarter, the company delivered strong mid-teens growth in the international business, driven by the U.K., Italy, Belgium and Brazil. The company remains positive about the long-term growth potential of its international business as it continues to reset the Japanese market. The company does not expect to face the continuing challenges in the year-over-year comps internationally, which resulted from the placement of large distributor orders in the first half of last year.
Weak Margin Scenario: In the first quarter, Globus Medical’s gross margin contracted 146 basis points (bps) to 74.3% due to a 7.5% rise in the cost of goods sold. Meanwhile, selling, general and administrative expenses were up 2.9% and research and development expenses rose 16.7% from the year-ago quarter. These escalating operating expenses led to a 309-bps contraction in adjusted operating margin to 23.1%, building pressure on the bottom line.
Pricing Pressure Persists: The musculoskeletal devices industry is characterized by intensifying competitive pricing pressure. If competitive forces drive down the prices Globus Medical charges for its products, profit margins will shrink. This will affect its ability to maintain profitability and invest and grow its business.
Exposure to Currency Movement: A significant portion of Globus Medical’s revenues and expenses is generated in the international markets of Japan, the Euro zone, the U.K. and Australia. This makes the company highly susceptible to unfavorable foreign currency movements.
Over the past 90 days, the Zacks Consensus Estimate for Globus Medical’s 2022 earnings has moved 1.4% down to $2.10.
The Zacks Consensus Estimate for its 2022 revenues is pegged at $1.03 billion, suggesting a 7.2% rise from the 2021 reported number.
Other Key Picks
A few better-ranked stocks in the broader medical space are AMN Healthcare Services, Inc. AMN, Medpace Holdings, Inc. MEDP and UnitedHealth Group Incorporated UNH.
AMN Healthcare has a long-term earnings growth rate of 1.1%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 15.6%, on average. It currently flaunts a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
AMN Healthcare has outperformed its industry in the past year. AMN has gained 2.9% against the industry’s 64.6% fall.
Medpace has a historical growth rate of 27.3%. Medpace’s earnings surpassed estimates in the trailing four quarters, the average surprise being 17.1%. It currently has a Zacks Rank #2.
Medpace has outperformed its industry in the past year. MEDP has declined 14.2% compared with the industry’s 64.6% fall.
UnitedHealth has an estimated long-term growth rate of 14.8%. UnitedHealth’s earnings surpassed estimates in the trailing four quarters, the average surprise being 3.7%. It currently carries a Zacks Rank #2.
UnitedHealth has outperformed the industry in the past year. UNH has gained 22% compared with 18.3% industry growth in the said period.
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