Avanos Medical, Inc. AVNS is well-poised for growth in the coming quarters, courtesy of its impressive product line. The optimism led by a solid fiscal second-quarter 2024 performance and continued focus on its research and development (R&D) are expected to contribute further. However, macroeconomic concerns and foreign exchange volatility persist.
In the year-to-date period, this Zacks Rank #2 (Buy) stock has gained 3.7% compared with the 8.4% rise of the industry and 20% growth of the S&P 500 Composite.
The renowned medical device solutions provider has a market capitalization of $1.08 billion. Avanos’ earnings yield of 5.9% compares favorably against the industry’s negative yield.
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Factors Favoring AVNS’s Growth
Solid Product Portfolio Driving Growth: Avanos’ robust product suite raises our optimism. Digestive Health is a portfolio of products that includes its MIC-KEY enteral feeding tubes, Corpak patient feeding solutions and NeoMed neonatal and pediatric feeding solutions. Pain Management and Recovery is a portfolio of non-opioid pain solutions, including Surgical pain and recovery products and Interventional pain solutions.
During the second quarter of fiscal 2024, Avanos continued to witness strength in the Digestive Health segment. The robust growth in NeoMed and continued demand for Game Ready were promising. Strength in the legacy Enteral Feeding business during the quarter was also encouraging.
Pain Management and Recovery’s normalized organic sales for the segment in the fiscal second quarter were up 2%, excluding HA and inorganic sales related to Avanos’ Diros acquisition. Per management, the segment’s On-Q/ambIT products recorded mid-single-digit growth.
Focus on R&D: We are upbeat about Avanos' continued focus on its research and development division to bring new products to market and improve the efficiency, dependability, and security of its existing offerings. The company holds numerous patents and has numerous patent applications pending in the United States and other nations that are related to the technology utilized in many of the company's products.
Strong Q2 Results: Avanos ended the fiscal second quarter of 2024 with better-than-expected results. Strong overall top-line and bottom-line results and its continued strength in the Digestive Health segment in the quarter were encouraging.
On the earnings call, management confirmed that the strong demand for ENFit conversions in North America continues to aid the company. Management also commented that its Interventional Pain (IVP) business returned to growth in the fiscal second quarter, with Avanos’ combined Radio Frequency Ablation portfolio increasing mid-single-digits year over year. Management was also encouraged by the continued momentum seen in the IVP generator sales, accompanied by capturing higher procedural volumes. These raise our optimism about the stock.
Factors That May Offset the Gains for AVNS
Macroeconomic Concerns: Avanos is facing macroeconomic challenges, notably inflationary pressures arising from global supply chain disruptions, workforce shortages, and pervasive economic causes. Avanos' financial situation has been impacted by these circumstances, which have increased manufacturing and operational costs. It is anticipated that these pressures will continue in the future. The uncertainty surrounding the company's ability to offset these expenses through pricing adjustments puts its profitability and gross margins at risk.
Foreign Exchange Volatility: Due to Avanos’ international operations, it transacts business in various foreign currencies and is subject to the effects of changes in foreign currency exchange rates, including the Mexican peso, Japanese yen, Australian dollar and the Euro. The company’s financial statements are reported in U.S. dollars with international transactions being translated into U.S. dollars. If the U.S. dollar strengthens in relation to the currencies of other countries where it sells its products, the U.S. dollar-reported net sales and income will decrease.
For the three months ended June 30, 2024, net sales increased 1.4% to $171.7 million compared with the prior-year period due to continued strong demand and volume in the company’s Digestive Health portfolio. Favorable volume overall was offset by 1.8% of unfavorable pricing by 0.3% of unfavorable foreign currency translation effects.
Estimate Trend
Avanos is witnessing a stable estimate revision trend for 2024. In the past 60 days, the Zacks Consensus Estimate for its earnings has been stable at $1.39 per share.
The Zacks Consensus Estimate for the company’s third-quarter 2024 revenues is pegged at $175 million, indicating a 2.2% improvement from the year-ago quarter’s reported number.
Key Picks
Some better-ranked stocks in the broader medical space are Universal Health Service UHS, Quest Diagnostics DGX and ABM Industries ABM. Universal Health Service sports a Zacks Rank #1 (Strong Buy), while Quest Diagnostics and ABM Industries carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Universal Health Service has an estimated long-term growth rate of 19%. UHS’ earnings surpassed estimates in each of the trailing four quarters, with the average being 14.58%.
Universal Health Service has gained 56.1% compared with the industry's 48.1% rise so far this year.
Quest Diagnostics has an estimated long-term growth rate of 6.20%. DGX’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 3.31%.
Quest Diagnostics shares have gained 13.9% so far this year compared with the industry’s 17.9% rise.
ABM Industries’ earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 7.34%.
ABM's shares have risen 27.4% so far this year compared with the industry’s 17% growth.
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