Here's Why You Should Retain Surmodics (SRDX) Stock for Now
Surmodics, Inc. SRDX is well-poised for growth in the coming quarters, courtesy of its solid prospects in the thrombectomy business over the past few months. The optimism led by a solid first-quarter fiscal 2023 performance and its consistent efforts to boost research and development (R&D) are expected to contribute further. Yet, concerns related to reliance on third parties and data security threats persist.
Over the past year, this Zacks Rank #3 (Hold) stock has lost 46.4% compared with 37.3% decline of the industry and 5.3% fall of the S&P 500 composite.
The renowned medical device and in-vitro diagnostics technology provider has a market capitalization of $327.1 million. Surmodics projects 46.6% growth for fiscal 2024, expecting to maintain its strong performance. SRDX’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average earnings surprise being 24.4%.
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Let’s delve deeper.
Consistent Efforts to Boost R&D: Surmodics’ solid efforts to improve its R&D stature have been a key growth driver, which raises our optimism. The company’s whole product solutions pipeline and sirolimus-based below-the-knee drug-coated balloon program deserve mention. Surmodics has been making progress using its internally developed .014 balloon platform.
In January, Surmodics announced that the differentiated capabilities of its crystalline drug release platform for sirolimus-coated balloons were discussed in connection with 12-month data from its SWING trial at the International Symposium on Endovascular Therapy.
Thrombectomy Prospects Bright: Surmodics’ aim to leverage its proprietary Pounce thrombectomy platform technology to develop products raises our optimism. During the first-quarter fiscal 2023 earnings call in February, Surmodics confirmed that it had recently begun to conduct limited market evaluations to gain experience across a wide variety of cases and clinical conditions and assess the feedback from various physicians. Per management, the real-world feedback thus obtained will help inform future design enhancements that benefit physicians and patients while optimizing its commercial viability.
Strong Q1 Results: Surmodics’ better-than-expected earnings in first-quarter fiscal 2023 buoy optimism about the stock. The company registered robust revenues from its Medical Device segment, as well as from its Product sales, and royalties and license fees. In October 2022, Surmodics announced its entry into a new, five-year credit agreement with MidCap Financial, which is encouraging.
Downsides
Reliance on Third Parties: A principal element of Surmodics’ business strategy is to enter into licensing arrangements with medical devices and other companies that manufacture products incorporating its technologies. The revenues it derives from such arrangements depend upon its ability or its licensees’ ability to successfully develop, obtain regulatory approval for, market and sell products incorporating Surmodics’ technologies. Its failure or the failure of its licensees to meet these requirements could have a material adverse effect on Surmodics’ business.
Data Security Threats: Surmodics collects and stores sensitive data, including its proprietary business information, on its networks. The secure maintenance of this information is critical to its operations and business strategy. Despite Surmodics’ security measures, its information technology and infrastructure may be vulnerable to attacks by hackers resulting from employee error or other disruptions.
Estimate Trend
Surmodics is witnessing a positive estimate revision trend for fiscal 2023. In the past 90 days, the Zacks Consensus Estimate for its earnings has narrowed from a loss of $2.37 to a loss of $1.93 per share.
The Zacks Consensus Estimate for the company’s second-quarter fiscal 2023 revenues is pegged at $25.9 million, suggesting a 0.4% decline from the year-ago reported number.
This compares to our second-quarter 2023 revenue estimate of $26 million, suggesting a 0.2% dip from the year-ago quarter’s reported number.
Key Picks
Some better-ranked stocks in the broader medical space are Hologic, Inc. HOLX, McKesson Corporation MCK and Avanos Medical, Inc. AVNS.
Hologic, sporting a Zacks Rank #1 (Strong Buy) at present, has an estimated long-term growth rate of 15.2%. HOLX’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average beat being 30.6%.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Hologic has gained 12.3% against the industry’s 10.8% decline in the past year.
McKesson, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 10.4%. MCK’s earnings surpassed estimates in two of the trailing four quarters and missed the same in the other two, the average beat being 3.4%.
McKesson has gained 24.2% against the industry’s 5.7% decline over the past year.
Avanos, carrying a Zacks Rank #2 at present, has an estimated growth rate of 1.8% for 2023. AVNS’ earnings surpassed estimates in all the trailing four quarters, the average beat being 11%.
Avanos has lost 13.5% compared with the industry’s 10.8% decline over the past year.
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