Here's Why You Should Retain CONMED (CNMD) Stock for Now
CONMED Corporation CNMD is well poised for growth in the coming quarters, courtesy of its broad product spectrum. The optimism, led by the solid second-quarter 2023 performance and a potential General Surgery, is expected to contribute further. However, headwinds from regulatory requirements and data security threats persist.
This Zacks Rank #3 (Hold) company’s shares have risen 14.1% year to date compared with the industry’s 10.5% growth. The S&P 500 Index has gained 13.6% during the same time frame.
CONMED, the renowned global medical products manufacturer specializing in surgical instruments and devices, has a market capitalization of $3.11 billion. The company projects 27.9% growth over the next five years and expects to maintain its strong performance going forward.
Its earnings surpassed estimates in three of the trailing four quarters and missed the same once, delivering a negative average surprise of 9.28%.
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Let’s delve deeper.
Potential in General Surgery: The segment 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 a competitive edge in the MedTech space. One of these products, the Anchor Tissue Retrieval bag, deserves a special mention. It is one of the major platforms in the company’s specimen bag portfolio.
Broad Product Spectrum: CONMED offers a broad line of surgical products, including several new devices in the Orthopedic, Laparoscopic, Robotic, Open Surgery, Gastroenterology, Pulmonary and Cardiology sections.
Products like Hi-Fi Tape and Hi-Fi suture interface are a critical component of repair security in the rotator cuff repair space.
Other notable offerings are the MicroFree platform in Orthopedics, the TruShot, the Y-Knot Pro and the CRYSTALVIEW Pump. The Anchor Tissue Retrieval bag is a unique product under the General Surgery arm.
Solid Recurring Revenue Base: Approximately 80% of CONMED’s revenues are recurring, derived from the sale of disposable single-use products. The remaining 20% comes from sales of capital equipment (such as powered drills and saws for surgery, electrosurgical generators, video-imaging cameras, fluid control systems and surgical hand-pieces). This, in turn, creates demand for complementary single-use items.
Hospitals and clinics are expanding the use of single-use, disposable products. This endeavor is aimed at reducing expenses related to sterilizing surgical instruments and products following surgery.
CONMED’s revenues totaled $317.7 million in second-quarter 2023, up 14.6% year over year. Additional sales from newly-acquired businesses contributed approximately 400 basis points of growth.
Using one-time disposable products also lowers the risk of patient infection and reduces post-operative care cost, which is no longer covered by Medicare.
Downsides
Regulatory Requirements: Substantially, all CONMED products are classified as class II medical devices, subject to regulations of numerous agencies and legislative bodies worldwide. As a manufacturer of medical devices, the company’s manufacturing processes and facilities are subject to on-site inspection and constant review by the FDA for compliance with the Quality System Regulations.
Dismal margins and FX Impact: Although CONMED recorded strong growth across all segments in the second quarter, inflationary pressures continued to hurt margins. Gross margin declined 110 basis points to 53.7%. CNMD continues to expect foreign exchange to have an unfavorable impact on its top-line growth by 150-200 basis points in 2023. Currency rates are expected to negatively impact earnings by 20-25 cents per share.
Estimate Trend
CONMED is witnessing a positive estimate revision trend for 2023. In the past 60 days, the Zacks Consensus Estimate for earnings has improved from $3.41 per share to $3.47.
The same for the company’s third-quarter revenues is pegged at $301.3 million, indicating a 9.5% improvement from the year-ago quarter’s reported number.
CONMED Corporation Price
CONMED Corporation price | CONMED Corporation Quote
Stocks to Consider
Some better-ranked stocks in the broader medical space are Align Technology ALGN, McKesson Corporation MCK and Medpace MEDP.
Align Technology, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 17.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
ALGN’s earnings surpassed estimates in two of the trailing four quarters and missed twice, delivering an average negative surprise of 1.76%. The company’s shares have risen 41.6% year to date compared with the industry’s 10.5% growth.
McKesson, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 10.7%. MCK’s earnings surpassed estimates in three of the trailing four quarters and missed once, delivering an average surprise of 8.1%.
The stock has rallied 16.9% year to date compared with the industry’s 10.5% growth.
Medpace, carrying a Zacks Rank #2 at present, has an estimated growth rate of 16.2% for 2024. MEDP’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 22.28%.
The company’s shares have rallied 14.3% year to date against the industry’s 11.7% decline.
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