Here’s Why Investors Should Retain Globus Medical (GMED) Stock

Globus Medical, Inc. GMED is gaining from robust performance across several international markets. The company posted better-than-expected results in the third quarter of 2022. Its constant efforts to develop meaningful product innovations also buoy optimism. However, forex woes and persistent pricing pressure do not bode well.

In the past year, this Zacks Rank #3 (Hold) stock has gained 1.3% against a 15.9% fall of the industry and a 15.7% drop of the S&P 500 composite.

The renowned medical device company has a market capitalization of $7.42 billion. In the past five years, the company’s shares have gained 11.1% growth compared with the industry’s 9.3% rise. The long-term expected growth rate is estimated at 11.2% compared with the industry’s growth expectation of 16.1%.

Let’s delve deeper.

Factors at Play

Q3 Upsides: Globus Medical exited the third quarter of 2022 with better-than-expected revenues. The company noted that the third quarter is typically challenging for capital sales. Despite that, total sales improved 11% year over year on a reported basis (up 13% at CER). U.S. Spine improved 9%, with notable gains across the product portfolio in expandables, 3D printed implants, cervical and lateral offerings, biologics and pedicle screws. The upside is driven by competitive rep conversions and robotic pull-through. The competitive rep recruiting is tracking ahead of the prior year.

International Business Holds Potential: Globus Medical’s international revenues currently account for 14.5% of the company’s total sales. International revenues rose 17.7% as reported, or 31.8% at CER, in the third quarter. Strong growth was seen across the Spinal Implant portfolio. Further, the company continued to see solid gains, with ExcelsiusGPS sales growing internationally, mainly in Western Europe.

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Within the spinal implant business, during the third quarter of 2022 on the international front, the company delivered 25% growth at CER. Double-digit growth was registered in most markets, including the United Kingdom, Australia, Brazil, India and Poland, where growth rates continued to exceed 40% in each market. Despite persistent declines in Japan (a trend expected to continue through the third quarter), Globus Medical remains positive on the progress and potential of its international business for long-term growth as it continues to reset the Japanese market.

Steady Pace of Product Development: In line with the company’s business strategy to focus on its integrated product development, Globus Medical is making efforts to innovate, research and develop. Per the company, its team-oriented approach, active surgeon input and demonstrated capabilities position it to maintain a rapid rate of product launches.

For the fourth quarter of 2022, the company plans two meaningful launches to strengthen its offerings further. In May, the company shipped its first Excelsius3D imaging systems. Earlier in 2022, the company launched HEDRON P, a 3D-printed articulating lumbar interbody spacer adding to its existing HEDRON portfolio. According to Globus Medical, HEDRON is one of its fastest-growing product lines as well as increasing the articulating spacer offering along with SIGNATURE and ALTERA. As the company moves into the rest of 2022, it remains focused on three core elements for long-term growth: innovative new product introductions, robot and imaging placements and competitive rep recruiting.

Downsides

Pricing Pressure Persists: The musculoskeletal devices industry is characterized by intense competitive pricing pressure. Pricing continues to remain a major headwind for Globus Medical. We remain concerned about the pricing scenario as it will be affected by cost containment efforts by governmental healthcare, local hospitals and health systems.

Exposure to Currency Movement: Globus Medical records 14.5% of its 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

In the past 30 days, the Zacks Consensus Estimate for Globus Medical’s 2022 earnings has remained unchanged at $2.03.

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

Some better-ranked stocks in the broader medical space are AMN Healthcare Services, Inc. AMN, Progyny Inc. PGNY and Merit Medical Systems, Inc. MMSI.

AMN Healthcare, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 3.3%. AMN’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average beat being 10.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AMN Healthcare has lost 4.2% compared with the industry’s 24.5% decline in the past year.

Progyny, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 21.1%. PGNY’s earnings surpassed estimates in all of the trailing four quarters, the average beat being 233.75%.

PGNY has lost 23% against the industry’s 24.5% decline in the past year.

Merit Medical, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average beat being 25.4%.

Merit Medical has gained 21.7% against the industry’s 4.6% decline in the past year.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.