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Here's Why You Should Retain Integra (IART) Stock for Now

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·4 min read
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Integra LifeSciences Holdings Corporation IART is well-poised for growth in the coming quarters, backed by strength across the Codman Specialty Surgical (“CSS”) and Tissue Technologies businesses. The company reported better-than-expected results for the second quarter of 2021. Strong sequential performance in the second quarter instills optimism. However, foreign exchange woes and stiff competition persist.

Over the past year, the Zacks Rank #3 (Hold) stock has gained 50.5% compared with 14.1% growth of the industry and a 29.5% rise of the S&P 500.

The renowned medical device company has a market capitalization of $6.10 billion. Its second-quarter 2021 earnings surpassed the Zacks Consensus Estimate by 17.9%.

Over the past five years, the company registered earnings growth of 8.9% compared with the industry’s 2.6% rise and the S&P 500’s 2.8% increase. The company’s long-term projected growth of 14.8% compares with the industry’s growth projection of 18.1% and the S&P 500’s expectation of 11.3% growth.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Let’s delve deeper.

Q2 Upsides: Integra exited the second quarter of 2021 with better-than-expected earnings and revenues. Year-over-year growth in revenues on strong performance across the CSS and Tissue Technologies segments buoy optimism. Strong sequential growth in the second quarter was driven by the recovery in the company’s core portfolio of products in neurosurgery, instruments, burn trauma and surgical reconstruction.

International performance was strongest in the Asia Pacific, led by Japan and China. A rise in gross profit and the expansion of both margins are other upsides. The raised financial guidance is indicative that this growth momentum will continue.

CSS Holds Strong Prospects: The CSS segment’s revenues grew 51.3% year over year in the second quarter of 2021 on double-digit organic growth in global neurosurgery and instruments. The CSS segment also reported double-digit growth in international sales across all regions compared with the prior year.

We are optimistic about Integra’s acquisition of ACell, Inc. in 2021. Despite registering a slower start in the second quarter, this is projected to achieve full-year revenues of $70-$74 million, per management. All critical components related to the integration of ACell were completed ahead of schedule in the second quarter.

Tissue Technologies Holds Potential: We are upbeat about Integra’s Tissue Technologies business, which grew 49.8% year over year on a reported basis and 47.1% on an organic basis in the second quarter. In the quarter, sales in wound reconstruction improved 52% on an organic basis from the prior year. Sales in wound reconstruction improved in the mid-single digits, banking on Integra Skin and SurgiMend in the company’s burn, trauma and surgical reconstruction markets.

Downsides

Competitive Landscape: Integra faces significant competition in the specialty surgical solutions space from the Aesculap division of B. Braun Medical, Inc., Johnson & Johnson, and other MedTech bigwigs. The company competes with other major players in orthopedics and tissue technologies, including the Wright Medical Group, N.V., and Stryker Corporation. Integra has to constantly innovate on the product front in order to keep up with the competition.

COVID-Led Postponement of Surgical Procedures Dents Sales: Integra’s management noted that during the first two months of fourth-quarter 2020, sales were in line with the expectations. However, since March, as the pandemic took a graver form, the demand for the company’s surgical procedures declined significantly. The emergence of a new and more contagious strain of the virus might disrupt the business down the line.

Foreign Exchange Woes Linger: Integra is susceptible to currency fluctuations as it generates significant revenues from outside the United States. Hence, currency fluctuations between the U.S. dollar and foreign currency may have an impact on the demand for the company's products in foreign countries. With the recent upward trend observed in the value of the U.S. dollar, further acceleration expected by analysts in this value will cause the company’s revenues to suffer overseas.

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 3.4% to $3.02.

The Zacks Consensus Estimate for third-quarter 2021 revenues is pegged at $385.98 million, suggesting a 4.25% rise from the year-ago reported number.

Key Picks

A few better-ranked stocks from the Medical-Instruments industry are Intuitive Surgical, Inc. ISRG, Semler Scientific Inc. SMLR and IDEXX Laboratories, Inc. IDXX, each presently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Intuitive Surgical has a long-term earnings growth rate of 9.7%.

Semler Scientific has a long-term earnings growth rate of 25%.

IDEXX has a long-term earnings growth rate of 19.9%.


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