Integra LifeSciences Holdings Corporation’s IART growth in the third quarter is driven by sales growth within its Codman Specialty Surgical (“CSS”) arm despite ongoing supply challenges and temporary shipping holds. The company’s strong focus on portfolio optimization is encouraging. Meanwhile, headwinds such as a dull macro environment and weak liquidity position pose concerns for Integra’s operations.

In the past year, this Zacks Rank #3 (Hold) company’s shares have lost 39.1% against the industry’s 14.7% growth and the  S&P 500 composite’s 31.4% increase.

The renowned medical device company has a market capitalization of $1.82 billion. In the last quarter, the company delivered an earnings surprise of 5.13%.

Let’s delve deeper.

Integra’s Key Tailwinds

Strong Prospects in CSS: Integra sees healthy demand for its industry-leading products within the CSS segment. Further, the integration synergy from the Acclarent business has been quite strong, outperforming the company’s expectations. According to the company, the acquisition will position Integra as a leader in the ENT segments, expand addressable markets, and provide immediate scale and accretive growth to the CSS portfolio.

In the third quarter of 2024, despite the ongoing supply challenges in Dural access and repair and the temporary shipping holds in CSS management and neuro-monitoring, Integra registered significant demand for its neurosurgery products. The company saw high single-digit growth in specialty surgical instruments and significant reported as well as organic growth in the ENT business. Integra also registered strong growth from the CereLink relaunch, CUSA Clarity and Mayfield Capital.

Strong Focus on Portfolio Optimization:  Integra reshaped its portfolio with the ACell acquisition. The company has expressed confidence in ACell’s potential for robust long-term growth. In the third quarter, Integra capital sales were up in the low double-digits, driven by the global relaunch of CereLink monitors, which has delivered results that are in line with the company’s expectations. Earlier in 2024, the company commercially launched its MicroMatrix Flex in the United States.

Integra’s spree of innovation and portfolio strengthening process requires a major thrust on R&D. In recent years, the company has gradually ramped up its investment in R&D. In the third quarter, Integra’s R&D expenses increased 3.2%.

Integra’s Key Headwinds

Tough Liquidity Position: With total debt (including the current portion) of $1.81 billion as of Sept. 30, 2024, Integra’s position looks quite tight from the liquidity point of view. The company’s cash and cash equivalents were $278 million at the end of the third quarter of 2024. The quarter’s total debt was much higher than the corresponding cash and cash equivalent level. Further, the company has $602 million of short-term payable debt on its balance sheet, which is also much higher than its current cash in hand. 

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Choppy Macro Environment: The challenging macroeconomic scenario, specifically in the Asia Pacific and Europe, is driving the higher-than-anticipated rise in raw materials and labor costs. Higher freight costs, ongoing labor inflation and manufacturing and supply-chain inefficiencies continued to put significant pressure on Integra’s margins recently. In the third quarter of 2024, selling, general and administrative expenses increased 9.4% year over year. Additionally, gross margins were impacted by nearly 452 basis points due to higher manufacturing inefficiencies, including scrap, along with unfavorable revenue mix, such as lower skin revenue.

IART’s Estimate Trend

The Zacks Consensus Estimate for 2024 earnings per share has remained constant at $2.45 in the past 30 days.

The consensus estimate for the company’s 2024 revenues is pegged at $1.61 billion, which indicates a 4.6% increase from the year-ago reported number.

Key Picks

Some better-ranked stocks in the broader medical space are Haemonetics HAE, Globus Medical GMED and Penumbra PEN.

Haemonetics has an earnings yield of 5.02% compared with the industry’s 1.18%. Its earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 19.39%. Its shares have risen 3.6% compared with the industry’s 19.9% growth in the past year.

HAE carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Globus Medical, carrying a Zacks Rank #2 at present, has a long-term estimated growth rate of 14.1%. Shares of the company have rallied 81.8% compared with the industry’s 14.5% growth. GMED’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 17.65%.

Penumbra, carrying a Zacks Rank #2 at present, has an estimated 2024 earnings growth rate of 33.5% compared with the industry’s 15.9%. Shares of Penumbra have risen 3.2% compared with the industry’s 14.5% growth over the past year. PEN’s earnings surpassed estimates in three of the trailing four quarters and missed in one, the average surprise being 10.54%.

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Integra LifeSciences Holdings Corporation (IART) : Free Stock Analysis Report

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