Here's Why Investors Should Retain Globus Medical (GMED) For Now
Globus Medical, Inc. GMED is gaining from continued sales growth in the U.S. Spine business. The company posted better-than-expected results in the second quarter of 2022. The company’s robust performance across several international markets is encouraging. Its constant efforts to develop meaningful product innovations also buoy optimism. However, mounting expenses and persistent pricing pressure do not bode well.
In the past year, this Zacks Rank #3 (Hold) stock has lost 23.2% against a 29.7% fall of the industry and a 13.1% drop of the S&P 500 composite.
The renowned medical device company has a market capitalization of $6.20 billion. Its earnings for second-quarter 2022 surpassed the Zacks Consensus Estimate by 3.7%.
In the past five years, the company has gained 11.1% growth, ahead of the industry’s 10.3% rise and the S&P 500’s 13.4% increase. The long-term expected growth rate is estimated at 10.0% compared with the industry’s growth expectation of 15.1% and the S&P 500’s estimated 11.5% growth.
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Let’s delve deeper.
Factors at Play
Q2 Upsides: Globus Medical exited the second quarter with better-than-expected earnings and revenues. The reported quarter witnessed 14% sequential growth with strong performances across the portfolio. The company set a new monthly sales record in June 2022, exceeding $100 million in monthly sales for the first time. U.S. Spine reported year-over-year growth against the challenging prior year comp of 64% growth. Enabling technology sales growth was robust, setting new quarterly records in both domestic and international sales.
Steady Pace of Product Development: Globus Medical is currently on track to launch meaningful products throughout the rest of 2022 while investing in future product lines and sales force expansion. During the second quarter, the company shipped its first Excelsius3D imaging systems and completed over 150 procedures.
Earlier in 2022, the company launched HEDRON P, a 3D printed articulating lumbar interbody spacer adding to its existing HEDRON portfolio. Per the company, HEDRON is one of its fastest-growing product lines and increasing the articulating spacer offering along with SIGNATURE and ALTERA.
International Business Holds Potential: Within the spinal implant business, Globus Medical delivered robust results on the international front during the second quarter. The company recorded double-digit growth across several markets, including Belgium, Brazil, India, and Poland, where growth rates exceeded 40% for each market. Despite continued declines in Japan (a trend expected to continue through the third quarter of 2022), the company remains positive on the progress and potential of its international business for long-term growth as it continues to reset the Japanese market.
Downsides
Rising Costs: In the second quarter, Globus Medical’s gross margin contracted 54 basis points to 74% due to a 7.2% rise in the cost of goods sold. Selling, general and administrative expenses fell 0.5% in the reported quarter, whereas research and development expenses rose 11.9%. These escalating expenses are building pressure on the company’s bottom line.
Pricing Pressure Persists: Pricing continues to remain a major headwind for Globus Medical. Competitive forces in the musculoskeletal devices industry might drive down the prices the company charges for its products. This will shrink Globus Medical’s profit margins, thus adversely affecting its ability to maintain profitability and invest and grow its business.
Forex Woes: Globus Medical derives a significant portion of its revenues from the international market, including Japan, the Euro zone, the U.K. and Australia. This makes it highly vulnerable to unfavorable currency fluctuations.
Estimate Trend
In the past 90 days, the Zacks Consensus Estimate for Globus Medical’s 2022 earnings has remained unchanged at $2.10.
The Zacks Consensus Estimate for its 2022 revenues is pegged at $1.03 billion, suggesting a 7% rise from the 2021 reported number.
Key Picks
A few better-ranked stocks in the broader medical space that investors can consider are AMN Healthcare Services, Inc. AMN, ShockWave Medical, Inc. SWAV and McKesson Corporation MCK.
AMN Healthcare has a long-term earnings growth rate of 3.2%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 15.7%, on average. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
AMN Healthcare has outperformed its industry in the past year. AMN has lost 4.7% against the industry’s 36.7% fall.
ShockWave Medical, sporting a Zacks Rank #1 at present, has an estimated growth rate of 33.1% for 2023. The company’s earnings surpassed estimates in all the trailing four quarters, the average beat being 180.1%.
ShockWave Medical has outperformed its industry in the past year. SWAV has gained 26.1% against the industry’s 29.7% fall in the past year.
McKesson has an estimated long-term growth rate of 9.9%. The company surpassed earnings estimates in the trailing three quarters and missed in one, delivering a surprise of 13%, on average. It currently carries a Zacks Rank #2 (Buy).
McKesson has outperformed its industry in the past year. MCK has gained 64.3% against the industry’s 15.8% fall.
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