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Why You Should Retain Avanos Medical (AVNS) Stock for Now

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·4 min read
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Avanos Medical, Inc. AVNS is well poised for growth on the back of robust performances by its Chronic Care and Pain Management segments as well as a strong product portfolio. However, competition remains stiff.

The company with a market capitalization of $2.30 billion is a medical technology entity that offers infection prevention, surgical, respiratory, digestive health and pain management solutions. It anticipates an earnings improvement of 6.3% over the next five years. Moreover, it has a trailing four-quarter earnings surprise of 78.2%, on average.

In the past three months, the stock has gained 45.4% compared with 8.1% growth of its industry.

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

Factors Working in Favor

Segmental Strength: Avanos reports through two broad segments, namely 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 manufactures respiratory health products like Ballard closed airway suction systems and oral care kits. In the third quarter, net revenues at the Chronic Care segment came in at $119.3 million, up 21.7% year over

Moreover, in spite of the slowdown in economy, the company saw sequential double-digit growth in customers and the September quarter registered the all-time high of ON-Q sales. This momentum is likely to continue in the remaining period of 2020 as the 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. 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.

Avanos’ recent launch of its enhanced  FDA-cleared 80-Watt COOLIEF RF generator received a favorable response from physicians, reflecting the company’s commitment toward innovation. The unveiling of this new generator together with the solid clinical evidence highlighting the efficiency of COOLIEF bodes well.

Through the third quarter, the company continued delivering sturdy sales growth across its Chronic Care franchise. In Respiratory Health, it again saw surging demand for its portfolio of clinically-proven closed suction catheters, which are essential to treat COVID-19 patients, which are essential in treating COVID-19 patients. In Digestive Health, demand for the company’s legacy MIC-KEY feeding tubes returned to more normalized levels. Avanos saw a monthly sequential increase in U.S. elective procedures in both Interventional and Acute Pain. The company recorded double-digit growth in its CORPAK portfolio, resulting from pandemic-related demand. It also registered double-digit growth in NeoMed as it expedited conversions to its ENFit technology. Within the Pain Management segment, sales grew sequentially as elective procedures continued to be revived throughout the third quarter.

What’s Holding the Stock Back?

Avanos faces significant competition in the United States and the international markets, which persistently weighs on its margins.

Estimate Trend

For 2020, the Zacks Consensus Estimate for revenues is pegged at $714.7 million, indicating a rise of 2.5% from the prior-year reported figure. The same for earnings stands at 73 cents per share, suggesting a decline of 31.8% from the year-ago reported number.

Key Picks

Some better-ranked stocks from the broader medical space are Align Technology ALGN, DaVita Inc DVA and Thermo Fisher Scientific TMO, each presently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Align Technology has a projected long-term earnings growth rate of 18.3%.

DaVita has a projected long-term earnings growth rate of 18.3%.

Thermo Fisher has an estimated long-term earnings growth rate of 18%.

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