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Here's Why You Should Retain Avanos Medical Stock for Now

Zacks Equity Research
·4 min read

Avanos Medical, Inc. AVNS is well poised for growth on robust performance by Chronic Care and Pain Management segments as well as astrong product portfolio. However, competition remains stiff.

Avanos Medical, with a market capitalization of $1.62 billion, is a medical technology company that offers infection prevention, surgical, respiratory, digestive health and pain management solutions. It anticipates earnings improvement of 6.3% over the next five years. Moreover, it has a trailing four-quarter earnings surprise of 64.2%, on average.

In the past three months, the stock has gained 14.4% compared with 11.6% growth of its industry.

Let’s take a closer look at the factors that substantiate the company’s Zacks Rank #3 (Hold).

Factors Working in Favor

Segmental Strength: Avanos reports through two broad segments — Chronic Care and Pain Management. Chronic Care is focused on digestive health products such as Mic-Key enteral feeding tubes and Corpak patient feeding solutions. It also produces respiratory health products such as Ballard closed airway suction systems and oral care kits.

Pain Management focuses on non-opioid solutions like acute pain products such as On-Q surgical pain pumps compression therapy systems. The Interventional Pain segment witnessed double-digit growth in the first quarter, with COOLIEF displaying growth of more than 20% for the first two months of the quarter.

Moreover, in spite of the slowdown, the company’s ON-Q Leiters partnership exhibited robust second-quarter results, pre-filled by ON-Q pumps sold at record levels in June. This momentum is continuing into the second half of 2020 as existing and new accounts are witnessing the benefit of pre-filled pumps.

 

Product Portfolio: Avanos boasts a broad product spectrum, which is a significant contributor to its top line. Notably, the company offers an innovative portfolio focused on respiratory and digestive health along with surgical and interventional pain management to improve patient outcome and reduce cost of care. These products include post-operative pain management solutions, minimally-invasive interventional (or chronic) pain therapies, closed airway suction systems and enteral feeding tubes. Products are sold under ON-Q, COOLIEF, MICROCUFF, MIC-KEY, HOMEPUMP, CORTRAK, GAME READY and other brand names.

It is also encouraging to note that in recent times, the company received 501(k) clearance for its ON-Q with Bolus pump. Further, Avanos announced that its CORTRAK Enteral Access System received a 2019 Innovative Technology designation from Vizient, the largest member-driven health care performance improvement company in the United States.

Avanos’ recent launch of its new state of the FDA-cleared 80-Watt COOLIEF RF generator received favorable response from physicians, reflecting the company’s commitment toward innovation. The launch of this new generator together with robust clinical evidence highlighting the efficiency of COOLIEF is anticipated to drive growth.

What’s Holding the Stock Back?

Avanos faces significant competition in the U.S. and international markets which continues to weigh on margins.

Estimates Trend

For 2020, the Zacks Consensus Estimate for revenues is pegged at $690.7 million, indicating a decline of 0.9% from the prior year. The same for earnings stands at 62 cents per share, suggesting a decline of 42.1% from the year-ago comparable period.

Key Picks

A few better-ranked stocks from the broader medical space are OPKO Health OPK, Surmodics SRDX and Merit Medical Systems MMSI.

OPKO Health’s long-term earnings growth rate is estimated at 12%. The company presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Surmodics’ long-term earnings growth rate is estimated at 10%. The company presently carries a Zacks Rank #2.

Merit Medical Systems’ long-term earnings growth rate is estimated at 11.9%. It currently carries a Zacks Rank #2.

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