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 third-quarter 2024 performance and continued focus on its research and development (R&D), is expected to contribute further. However, macroeconomic concerns and foreign exchange volatility persist.

In the year-to-date period, this Zacks Rank #3 (Hold) stock fell 29.8% against 3.5% rise of the industry and 12.1% growth of the S&P 500 composite.

The renowned medical device solutions provider has a market capitalization of $744.5 million. Avanos’ earnings yield of 10.7% compares favorably against the industry’s negative yield.

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Factors Favoring AVNS’ 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 third quarter of fiscal 2024, Avanos continued to witness strength in the Digestive Health segment, supported by continued double-digit growth in the NeoMed product line. The company witnessed strong demand for ENFit conversions in North America while also capturing opportunities from a competitor's backorder.

Demand for AVNS’ legacy enteral feeding business remained healthy, growing at market level during the third quarter compared to the previous year. The company expects continued above-market growth for its Digestive Health portfolio, supported by product innovations, global market expansion and inorganic growth opportunities.

Pain Management and Recovery’s normalized organic sales in the third quarter were up approximately 1%, excluding HA and inorganic sales related to Avanos’ Diros acquisition. Per management, the segment’s On-Q growth suffered due to supplier constraints but was partially offset by ambIT's continued double-digit growth.

The launch of CORGRIP in November last year should bring in additional sales during the soon-to-be-reported quarter. Moreover, the selection of the ON-Q elastomeric infusion pump and the Avanos ambIT disposable electronic infusion pump non-opioid pain management delivery systems for separate payment from Jan. 1, 2025, looks promising.

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 used in many of its products. Research and development expenses increased 18% year over year to $7.2 million during the third quarter of 2024.

Strong Q3 Results: Although Avanos ended the third quarter of 2024 with lower-than-expected sales, continued strength in the Digestive Health segment during the quarter was encouraging. The robust growth in NeoMed and continued demand for Game Ready were promising. Strength in the legacy Enteral Feeding business was another positive.

On its earnings call, management confirmed that the strong demand for ENFit conversions in North America continues to aid the company. Management also commented that its IVP business continued its growth trend in the third quarter, with Avanos’ combined Radio Frequency Ablation portfolio increasing mid-single digits year over year. Management was also encouraged by the continued momentum in the IVP generator sales, accompanied by 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 supplychain disruptions, workforce shortages, and pervasive economic causes. These circumstances have affected Avanos' financial situation, increasing manufacturing and operational costs. The trend is anticipated to 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 its 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 may decrease.

For the three months ended Sept. 30, 2024, net sales decreased 0.5% reportedly to $170.4 million compared with the prior-year period. However, sales were up 1.1% organically, reflecting unfavorable foreign currency translation effects.

AVANOS MEDICAL, INC. Price

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Estimate Trend

Avanos is witnessing a positive estimate revision trend for 2025. In the past 60 days, the Zacks Consensus Estimate for earnings has improved almost 3% to $1.73 per share.

The Zacks Consensus Estimate for the company’s first-quarter 2025 revenues is pegged at $173.5 million, indicating a 4.5% improvement from the year-ago quarter’s reported number. Earnings estimate of 29 cents per share implies a 31.8% improvement year over year.

Stocks to Consider

Some better-ranked stocks in the broader medical space are Masimo MASI, Penumbra PEN and Abbott Laboratories ABT.

Masimo, sporting a Zacks Rank #2 (Buy) at present, has an estimated growth rate of 11.8% for 2025. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

MASI’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 17.10%. Its shares have risen 58.5% compared with the industry’s 3.9% growth year to date.

Penumbra, carrying a Zacks Rank #1 at present, has an estimated growth rate of 37.5% for 2025. Its earnings beat estimates in three of the trailing four quarters and missed in one, delivering an average surprise of 10.54%.

PEN’s shares have gained 42.8% compared with the industry’s 3.9% growth in the past six months.

Abbott, carrying a Zacks Rank of 2 at present, has an estimated earnings growth rate of 10% for 2025. It delivered a trailing four-quarter average earnings surprise of 1.64%.

ABT’s shares have risen 9.8% in the past six months compared with the industry’s 11.1% growth.

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