Globus Medical, Inc.
GMED
has been gaining from robust international performance. The company ended the fourth quarter of 2021 with better-than-expected results. The continued upward trajectory in the U.S. Spine business buoys optimism. However, mounting operating expenses and tough competition raise apprehension.
Over the past year, this Zacks Rank #3 (Hold) stock has appreciated 13.7% against a 2.6% fall of the
industry
. Notably, the S&P 500 composite has risen 14.3%.
The renowned medical device company has a market capitalization of $7.03 billion. Its earnings for fourth-quarter 2021 surpassed the Zacks Consensus Estimate by 2.1%.
Over the past five years, the company has gained 1.1% growth, ahead of the industry’s 8.8% rise and the S&P 500’s 2.8% increase. The company’s long-term expected growth rate is estimated at 10.5% compared with the industry’s expectation of a 15.1% increase and the S&P 500’s estimated 11.4% rise.
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Let’s delve deeper.
Factors at Play
Spine Arm Grows Domestically:
Globus Medical’s U.S. Spine business has been exhibiting a continued growth trend in the past few quarters, accelerating considerably in the fourth quarter of 2021. U.S. Spine continued to gain significant market share, growing 3% in the reported quarter. The segment is gaining from product launches, competitive recruiting and pull-through from robotics. The company has also been witnessing strong adoption of single-position lateral and prone lateral procedures, which are enhanced by the capabilities of ExcelsiusGPS.
International Business Holds Potential:
We are encouraged by Globus Medical’s international revenues, which currently account for 14.5% of the company’s total sales. In the fourth quarter of 2021, international revenues rose 6.8% from the prior-year quarter, led by growth in spinal implants despite the lingering impacts of COVID-19 and GMED’s strategic changes in Japan. The international spine business, varied by region, grew 9% year over year in countries, including the U.K., Spain and Belgium.
Impressive Q4 Results Raise Optimism:
Globus Medical exited the fourth quarter with better-than-expected earnings and revenues. The clinical superiority of ExcelsiusGPS continues to be the primary factor driving the Enabling Technology business. Further, Musculoskeletal Solutions registered strong growth, led by the US Spine business. The company’s international business was strong, led by growth in spinal implants despite lingering COVID-19 impacts and the effects of the strategic changes in Japan.
Downsides
Escalating Costs to Ail:
In the fourth quarter, Globus Medical’s selling, general and administrative expenses rose 15.8% from the year-ago quarter. Research and development expenses surged 234.8%. These escalating expenses are building pressure on the bottom line.
Competition Threatens Growth:
The presence of a large number of players made the musculoskeletal devices market intensely competitive. The orthopedic industry, in particular, is highly competitive, with the presence of notable MedTech bigwigs. Globus Medical needs to constantly introduce or acquire products to withstand the competitive pressure and maintain its market share.
Forex Woes Persist:
Globus Medical records 14.5% of sales from the international market. A significant portion of the company’s foreign revenues and expenses is generated in Japan, the Eurozone, the U.K. and Australia. This makes it highly vulnerable to currency fluctuations.
Estimate Trend
Over the past 90 days, the Zacks Consensus Estimate for Globus Medical’s earnings has moved 2.3% down to $2.13.
The Zacks Consensus Estimate for its 2022 revenues is pegged at $1.03 billion, suggesting a 7.5% rise from the 2021 reported number.
Key Picks
A few better-ranked stocks in the broader medical space are
Henry Schein, Inc.
HSIC
,
McKesson Corporation
MCK
and
IDEXX Laboratories, Inc.
IDXX
.
Henry Schein has an estimated long-term growth rate of 11.8%. HSIC’s earnings surpassed estimates in the trailing four quarters, the average surprise being 25.5%. It currently has a Zacks Rank #2 (Buy). You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Henry Schein has outperformed the industry over the past year. HSIC has gained 29.3% compared with the industry’s 7.1% rise over the past year.
McKesson has a long-term earnings growth rate of 11.8%. MCK’s earnings surpassed estimates in the trailing four quarters, delivering a surprise of 20.6%, on average. It presently carries a Zacks Rank #2.
McKesson has outperformed the industry over the past year. MCK has gained 56.6% in the said period compared with 7.1% growth of the industry.
IDEXX has a long-term earnings growth rate of 13%. The company’s earnings surpassed estimates in the trailing four quarters, delivering an average surprise of 18.6%. IDXX currently has a Zacks Rank #2.
IDEXX has outperformed its industry in the past year. IDXX has gained 12.6% against the industry’s 2.6% decline in the same period.
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