Globus Medical GMED continues to gain from surging demand for its Musculoskeletal Solutions products. However, we are worried about a challenging macroeconomic scenario that continues to plague Globus Medical. The stock carries a Zacks Rank #3 (Hold) currently.
Globus Medical is gaining market share in the musculoskeletal solutions space, banking on the strong performance of its implantable devices, biologics, accessories, and unique surgical instruments used in an expansive range of spinal, orthopedic and neurosurgical procedures.
Strong Performance Amid Challenges
The company is particularly seeing notable gains across its product portfolio in expandables, biologics, MIS screws, 3D printed implants and cervical offerings. Over the past couple of quarters, this business has registered above-market growth, driven by competitive rep recruiting from prior quarters and robotic pull-through.
Globus Medical, in September 2023, completed the earlier-announced merger with NuVasive. The combined company is expected to be a global musculoskeletal company focused on rapid innovation, addressing unmet clinical needs and improving offerings to surgeons and patients. The combination capitalizes on GMED’s complementary commercial organization and should allow the company to accelerate its globalization strategies to increase customer reach and strengthen surgeon relationships.
Cost and Competitive Challenges
The combined company expects to bring the best-in-class technologies to create a differentiated and comprehensive procedural solution offering as part of its approach to address unmet clinical needs and support surgeons and patients. According to Globus Medical, both companies’ operational footprints are highly complementary, allowing them to better leverage each other’s manufacturing and supply chain resources to increase internal production while reducing the amount of capital investment required as a standalone entity. This way, they can redirect investment and improve cash flow.
Yet, like other industry players, Globus Medical is currently grappling with negative trends in the global economy, including interest rate fluctuations, increases in inflation and financial market volatility. These factors are affecting the company’s operations and financial performance. Inflation, in particular, has led to a significant rise in the cost of raw materials for the company. In the third quarter, the company recorded a 139.6% surge in the cost of goods sold.
Macroeconomic factors, along with rising wages and raw material costs, are also leading to a significant escalation in the company’s operating expenses. SG&A expenses in the reported quarter were up 46.6% from the year-ago quarter. Research and development expenses increased 56.8% year over year.
Meanwhile, the presence of a large number of players has made the musculoskeletal devices market intensely competitive. The orthopedic industry, in particular, is highly competitive with the presence of more prominent players like Zimmer Biomet, Stryker, Johnson & Johnson’s DePuy, Smith & Nephew and Medtronic. Globus Medical needs to constantly introduce or acquire new products to withstand the competitive pressure and maintain its market share.
Promising Picks in the Medical Space
Some better-ranked stocks in the broader medical space are Insulet PODD, Haemonetics HAE and DexCom DXCM. Insulet sports a Zacks Rank #1 (Strong Buy), while Haemonetics and DexCom each presently carry a Zacks Rank #2 (Buy).
Estimates for Insulet’s 2023 earnings per share have moved up from $1.90 to $1.91 in the past 30 days. Shares of the company have plunged 26% in the past year compared with the industry’s decline of 2.6%.
PODD’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 105.1%. In the last reported quarter, it delivered an average earnings surprise of 77.4%.
Haemonetics’ stock has risen 12.3% in the past year. Earnings estimates for Haemonetics have increased from $3.86 per share to $3.89 per share for 2023 and from $4.11 per share to $4.15 per share for 2024 in the past 30 days.
HAE’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 16.1%. In the last reported quarter, it came up with an earnings surprise of 5.3%.
Estimates for DexCom’s 2023 earnings per share have increased from $1.43 to $1.44 in the past 30 days. Shares of the company have increased 11.2% in the past year compared with the industry’s growth of 2.1%.
DXCM’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 36.4%. In the last reported quarter, it delivered an average earnings surprise of 47.1%.
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