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 first-quarter 2023 performance and a potential General Surgery, is expected to contribute further. However, headwinds from regulatory requirements and data security threats persist.
So far this year, this Zacks Rank #3 (Hold) stock has gained 34.3% compared with the industry’s 8.8% growth. The S&P 500 rose 9.4% during the same time frame.
CONMED, the renowned global medical products manufacturer specializing in surgical instruments and devices, has a market capitalization of $3.17 billion. The company projects 18% 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, the negative average surprise being 9.82%.
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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 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, which includes 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 critical components of repair security in the rotator cuff repair space.
Other notable offerings include 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), which, 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 $295.5 million in first-quarter 2023, up 21.9% year over year. Additional sales from newly-acquired businesses contributed approximately 570 basis points of growth.
Using one-time disposable products also lowers the risk of patient infection and reduces post-operative care costs, which are 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: Although CONMED recorded strong growth across all segments in the first quarter, inflationary pressures continued to hurt margins. Gross margin declined 350 basis points to 52.6%. The company recorded a year-over-year decline of 43.3% in operating income during the first quarter. Higher costs and expenses are likely to continue for the rest of 2023.
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 2.7% to $3.31 per share.
The same for the company’s second-quarter revenues is pegged at $306.2 million, indicating a 10.5% 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 from the broader medical space are Merit Medical Systems MMSI, West Pharmaceutical Services WST and Perrigo PRGO, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Merit Medical Systems has an estimated long-term growth of 11%. The company’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 20.22%.
So far this year, MMSI’s shares have gained 18.9% compared with the industry’s 8.7% growth.
West Pharmaceutical Services has an estimated long-term growth rate of 6.3%. Its earnings surpassed estimates in three of the trailing four quarters and missed the same once, the average surprise being 13.61%.
So far this year, WST’s shares have gained 49.1% compared with the industry’s 8.7% growth.
Perrigo’s earnings are expected to improve 24.2% in 2023. The strong momentum is likely to continue in 2024 as well. PRGO’s earnings surpassed estimates in two of the trailing four quarters and missed twice, the average negative surprise being 0.79%.
The company has lost 1.9% so far this year against the industry’s 4.8% growth.
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