CONMED Corporation CNMD is well poised for growth backed by broad product portfolio and solid gain from one of its core units — General Surgery. However, forex remains a concern.
Shares of CONMED have lost 9.1%, compared with the industry’s decline of 10.9% in a year's time. Meanwhile, the S&P 500 Index rose 7.4% in same timeframe.
The company, with a market capitalization of $2.12 billion, is a major medical products manufacturer specializing in surgical instruments and devices for minimally invasive procedures and monitoring. It anticipates earnings to improve 8.7% over the next five years. Moreover, it has a trailing four-quarter positive earnings surprise of 8.4%, on average.
Let’s take a closer look at the factors that substantiate the company’s Zacks Rank #3 (Hold).
What’s Deterring the Stock?
Foreign exchange movements are unfavorably impacting the company’s results. CONMED derives significant portion of revenues from international operations.
The strong U.S. dollar will continue to hinder sales growth. Per the fourth-quarter 2019 earnings call, the negative impact to sales from forex is anticipated between 120 bps and 150 bps for 2020.
What’s Favoring the Stock?
CONMED’s General Surgery segment’s solid performance continues to bolster the top line. The company’s unique products and solutions within this segment provide it a competitive edge in the MedTech space. Among unique products of General Surgery, the Anchor Tissue Retrieval bag deserves a mention.
In the first quarter, revenues in the segment grossed $114.7 million, up 9.2% year over year. Per management, growth was driven by strong performances of the product portfolio.
Moreover, CONMED boasts a broad product portfolio that enables it to drive revenue growth over a considerable period. Additionally, product innovations will not only fortify product portfolio but also enhance overall performance.
Further, the company’s continued focus on Research and Development (R&D) helps in instilling investor confidence. R&D expenses for the first quarter were $11 million or 4.7% of total sales. According to the fourth-quarter 2019 earnings call, CONMED’s management confirmed that it will continue to increase investments in R&D, which is likely to be 4.5-5% of net sales in 2020.
The company is reaping benefits from the improving trend of utilizing minimally invasive techniques as significant percentage of its products were created for these procedures.
In fact, a research report by Allied Market Research suggests that the global minimally invasive surgical instruments market is estimated to reach $52.98 billion by 2023 at a CAGR of 8.7% from 2017 to 2023. We believe solid market trends like these would fortify CONMED’s presence in the niche space.
Which Way are Estimates Headed?
For 2020, the Zacks Consensus Estimate for revenues is pegged at $780.3 million, indicating a decline of 18.3% from the year-ago period. The same for earnings stands at $25 cents per share, suggesting a decrease of 90.5% from the year-ago reported figure.
Stocks to Consider
Some better-ranked stocks from the broader medical space include Aphria (NYSE:APHA) Inc. APHA and HMS Holdings Corp. HMSY and West Pharmaceutical Services (NYSE:WST), Inc. WST. While Aphria and HMS Holdings carry a Zacks Rank #2 (Buy), West Pharmaceutical sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Aphria has an estimated long-term earnings growth rate of 24.6%.
HMS Holdings has an estimated long-term earnings growth rate of 11%.
West Pharmaceutical has a projected long-term earnings growth rate of 9.2%.
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