Globus Medical, Inc.’s GMED merger with NuVasive is expected to generate significant synergies, enhance its globalization initiatives, expand customer access and bolster ties with surgeons. The company is making a string of product introductions, which is highly promising for the coming quarters. Its robust prospect in the musculoskeletal space also bodes well for continued growth. However, the impacts of macroeconomic challenges and pricing pressure raise concerns about the company’s operational results.
This Zacks Rank #2 (Buy) company has delivered an impressive market performance in the past year. GMED shares have surged 62.8%, outpacing the industry’s 33.3% rise and the S&P 500 composite’s 39.4% gain.
The renowned medical device company has a market capitalization of $9.91 billion. With an earnings yield of 3.9%, it grossly outpaces the industry’s -5.4% yield. GMED’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 12.1%.
Let’s delve deeper.
Upsides for GMED
NuVasive Integration Synergy High: Globus Medical merged its business with NuVasive. 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. Together, they are working to bring the best-in-class technologies to create a differentiated and comprehensive procedural solution offering as part of their approach to addressing unmet clinical needs and supporting 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. Earlier, management noted that the combined company expects to generate a total of $170 million of synergies over three years as a result of the merger with NuVasive, 40% being realized in year one, 70% by the end of year two and 100% in year three.
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Steady Pace of Product Development: Following NuVasive integration, the cadence of product launches has significantly accelerated. In the second quarter of 2024, Globus Medical launched REVEL-S — an expandable, standalone ACDF spacer system to reduce impaction and tissue retraction, and HILINE — a versatile posterior band fixation system for the cervical and thoracolumbar spine. It also added the XLIF prone system to its existing XLIF procedural solutions.
The company also debuted AUTOBAHN PRO instruments and a digital targeting system, its next-generation instruments for trochanteric nailing that allow for a streamlined surgical workflow. Globus Medical’s high R&D spending trend indicates a healthy pipeline, with another series of product launches throughout the Musculoskeletal portfolio set to arrive in the coming months of 2024.
Musculoskeletal Prospects Strong: Globus Medical is gaining market share in the musculoskeletal solutions space, with notable gains across its product portfolio in expandables, biologics, MIS screws, 3D printed implants and cervical offerings. Throughout the past few quarters, this business has registered above-market growth driven by combined product offering, competitive rep recruiting from prior quarters and increased implant usage through robotic pull-through.
In the second quarter, Globus' proforma musculoskeletal revenues (assuming NuVasive revenues in the year-ago period) improved 3.7%, marking the third consecutive quarter of pro forma musculoskeletal revenue growth. The growth was driven by strong contributions from the company’s U.S. and international spine businesses, as well as the combined trauma portfolios.
Factors Weighing on GMED
Macroeconomic Concerns Curb Profit: 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. The increasing geopolitical complexities across the globe have led to a significant rise in raw material and freight costs for the company. In the second quarter, GMED incurred a 240% surge in the cost of goods sold.
Pricing Pressure Persists: Pricing remains 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. The musculoskeletal devices industry faces intense competition and the challenges of third-party coverage and reimbursement practices. If competitive forces drive down the prices the company charges for its products, its profit margins will shrink, adversely affecting Globus Medical’s ability to maintain its profitability and invest in and grow its business.
GMED Estimate Trend
Estimates for Globus Medical’s 2024 earnings per share (EPS) have remained constant at $2.84 in the past 30 days.
The Zacks Consensus Estimate for the company’s 2024 revenues is pegged at $2.48 billion. This suggests a 58.4% rise from the year-ago reported number.
Other Key Picks
Some other top-ranked stocks in the broader medical space are Phibro Animal Health PAHC, Haemonetics HAE and Boston Scientific BSX. While Phibro Animal Health sports a Zacks Rank #1 (Strong Buy), Haemonetics and Boston Scientific each carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Phibro Animal Health’s earnings are expected to increase 31.9% in fiscal 2025. Its shares have surged 115.8% compared with the industry’s 32.2% growth in the past year. PAHC’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed in one, the average surprise being 4.1%
Haemonetics has an estimated fiscal 2025 earnings growth rate of 15.4% compared with the industry’s 11.4% growth. The company’s shares have declined 10.8% against the industry’s 32.2% growth in the past year. HAE’s earnings surpassed estimates in three of the trailing four quarters and missed on one occasion, the average surprise being 3.5%.
Boston Scientific has an estimated 2024 earnings growth rate of 20% compared with the industry’s 11.4%. The company’s shares have surged 69.4% compared with the industry’s 32.1% growth in the past year. BSX’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 7.2%.
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