Globus Medical, Inc. GMED has been witnessing persistent momentum in robotic technology and visible trend improvement in sales through the second quarter, which stretched into July. Strong uptake of the company’s HEDRON line of 3D printed inner body spacers buoys optimism. However, persistent pricing pressure and a stiff competitive landscape are downsides.
Over the past year, the Zacks Rank #2 (Buy) stock has lost 1.1% against the 23.6% growth of the industry and 16.2% rise of the S&P 500.
The renowned provider of medical devices for musculoskeletal disorders has a market capitalization of $4.86 billion. It projects 13% growth over the next five years and expects to maintain its strength in robotic technology. The company surpassed estimates in one of the trailing four quarters, broke even in another and missed in the other two, with the average surprise being 32.6%.
Let’s delve deeper.
Prominent Sales Trend Improvement: We are upbeat about Globus Medical’s business over the past few months. Although the business bottomed in mid-April, there has been a visible rebound in the company’s revenue trend since then. The trend continued through the second quarter. While April revenues were down roughly two-thirds, May revenues improved dramatically, with just 25% sales loss. It saw double-digit growth in June from the corresponding period of 2019. Growth in July accelerated into mid-teens even as certain areas began restricting elective surgery again.
Strength in Spine Arm: Globus Medical’s robust spine arm buoys optimism. The company’s U.S. Spine business accelerated considerably in the second quarter, reflecting a persistent growth trend over the last few quarters. It launched six new Spine products in the first half of 2020.
Robust uptake in the HEDRON line of 3D printed inner body spacers and its fourth-generation expandable MIS TLIF device is encouraging. Further, Globus Medical is on track for several enhancements in imaging, navigation and robotic portfolio of the Enabling Technologies business, including a cranial robotic application and an imaging system.
Strong Second-Quarter Results: We are upbeat about Globus Medical’s second-quarter 2020 results. Improvement in the company’s U.S. revenues led by the U.S. spine business looks encouraging. We are upbeat about its stupendous investments in the R&D wing. Globus Medical launched several products in the spine portfolio, which instilled investors’ confidence in the stock.
However, persistent pricing pressure continues to remain a major headwind for the company. The musculoskeletal devices industry is characterized by intensifying competitive pricing pressure. Throughout 2019 and till second-quarter 2020, the company’s top-line growth was partially dampened by persistent pricing pressure. We remain concerned about the pricing scenario as it will be affected by cost-containment efforts by governmental healthcare, local hospitals and health systems.
Further, Globus Medical operates in a highly competitive industry, which includes biggies like Zimmer Biomet Holdings, Inc. ZBH. Globus Medical needs to constantly introduce or acquire new products to withstand the competitive pressure and maintain its market share.
Globus Medical has been witnessing a positive estimate revision trend for 2020. Over the past 90 days, the Zacks Consensus Estimate for its earnings has moved 30.2% north to $1.12 per share.
The Zacks Consensus Estimate for third-quarter 2020 revenues is pegged at $197.4 million, suggesting a 0.6% rise from the year-ago reported number.
Other Key Picks
Other top-ranked stocks from the broader medical space include QIAGEN N.V. QGEN and Thermo Fisher Scientific Inc. TMO.
QIAGEN’s long-term earnings growth rate is estimated at 22.3%. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Thermo Fisher’s long-term earnings growth rate is estimated at 15.5%. It currently sports a Zacks Rank #1.
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