CONMED Corporation CNMD is well poised for growth in the coming quarters, courtesy of its broad product spectrum. The optimism, led by the solid recurring revenue base and potential in General Surgery, is expected to contribute further. However, headwinds from supply-chain constraints and data security threats persist.
Shares of this Zacks Rank #3 (Hold) company have lost 39.2% year to date compared with the industry’s 1.7% fall. The S&P 500 Index has increased 20.6% in the same time frame.
CONMED, a renowned global medical products manufacturer specializing in surgical instruments and devices, has a market capitalization of $2.05 billion. The company projects 23.4% earnings growth for fiscal 2025 and expects to maintain its strong performance going forward.
Its earnings surpassed estimates in three of the trailing four quarters and missed the same once, delivering an average surprise of 4.3%.
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Factors Favoring CNMD Stock
Potential in General Surgery: The segment consists of a complete line of endo-mechanical instrumentation for minimally invasive laparoscopic and gastrointestinal procedures, a line of cardiac monitoring products, as well as electrosurgical generators and related instruments.
CONMED’s General Surgery segment is gaining a competitive edge in the MedTech industry, driven by unique products like the Anchor Tissue Retrieval bag, a key offering in its specimen bag portfolio.
In the second quarter of 2024, revenues in this segment increased 9.4% at constant exchange rates, with domestic sales up 8.9% and international sales rising 8.8%. The company anticipates that global General Surgery products will continue to grow above market rates due to enhanced sales representatives and improved customer engagement.
Strong demand for AirSeal and Buffalo Filter boosts CONMED's performance.
Broad Product Spectrum: CONMED boasts a diverse range of surgical products across multiple specialties, including orthopedics, laparoscopic, robotic, open surgery, gastroenterology, and pulmonary and cardiovascular medicine. Key innovations such as Hi-Fi Tape and the Hi-Fi suture interface are pivotal for ensuring repair security in rotator cuff surgeries. In 2022, CONMED expanded its Orthopedic portfolio by acquiring In2Bones Global, Inc. for $145 million, with potential additional earnouts based on growth.
CONMED's broadening product range, including the MicroFree platform, TruShot, Y-Knot Pro, CRYSTALVIEW Pump and Anchor Tissue Retrieval bag, aims to rejuvenate top-line growth. Key products like the IM8000 surgical visualization system and Edge Ablation system position CONMED for improved performance and growth in the market
Solid Recurring Revenue Base: CONMED's performance is bolstered by its business model, with approximately 80% of revenues coming from recurring sales of single-use disposable products. These items are increasingly favored by hospitals and clinics as they reduce sterilization costs, minimize infection risks and lower post-operative care expenses.
The remaining 20% of revenues comes from capital equipment sales, such as surgical tools and imaging systems, which, in turn, drives demand for complementary single-use products, further contributing to CONMED's sustained growth.
Downsides
Regulatory Requirements: CONMED's stock may face potential downsides due to regulatory scrutiny and compliance challenges associated with its classification as a manufacturer of Class II medical devices. The company is subject to inspections by the FDA and international regulatory bodies, which can lead to significant costs in responding to compliance issues. These factors could negatively impact the company's operations and financial performance.
Data Security Threats: CONMED's stock may be at risk due to its heavy reliance on information technology (IT) systems for managing sensitive business-related and customer data. The company faces significant cybersecurity threats that could jeopardize the security, confidentiality, and integrity of its data. These factors could negatively impact CONMED's operational stability and financial performance, posing a downside for investors.
Estimate Trend
CONMED is witnessing a negative estimate revision trend for 2024. In the past 90 days, the Zacks Consensus Estimate for earnings declined from $4.30 per share to $3.99.
The Zacks Consensus Estimate for third-quarter 2024 revenues and earnings per share is pegged at $318.71 million and 99 cents, respectively, suggesting 4.6% and 10% growth from the year-ago reported numbers.
Some top-ranked stocks in the broader medical space are Tenet HealthCare (THC), ATI Physical Therapy (ATIP) and Aveanna Healthcare AVAH. While Tenet HealthCare sports a Zacks Rank #1 (Strong Buy), ATI Physical Therapy and Aveanna Healthcare carry a Zacks Rank #2 (Buy) each at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Tenet HealthCare has an estimated long-term growth rate of 18.3%. THC's earnings surpassed estimates in each of the trailing four quarters, with the average being 58.5%.
Tenet HealthCare has gained 119.9% compared with the industry's 48.6% growth year to date.
ATI Physical Therapy's earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 7.25%.
ATIP's shares have gained 5.5% year to date compared with the industry’s 18.6% growth.
Aveanna Healthcare's earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 47.5%.
AVAH's shares have surged 104.5% year to date compared with the industry’s 15.7% growth.
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