CONMED Corporation CNMD is well poised for growth in the coming quarters, courtesy of its broad product spectrum. The optimism, led by the solid recurring revenue base and potential in General Surgery, is expected to contribute further. However, headwinds from supply-chain constraints and data security threats persist.

Shares of this Zacks Rank #3 (Hold) company have lost 19% so far this year compared with the industry’s 3.4% decline. The S&P 500 Index has decreased 14.1% in the same time frame.

CONMED, a renowned global medical products manufacturer specializing in surgical instruments and devices, has a market capitalization of $1.74 billion. The company projects 7.7% earnings growth for fiscal 2025 and expects to maintain its strong performance going forward.

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Its earnings surpassed estimates in three of the trailing four quarters and missed the same once, delivering an average surprise of 7.75%.

Factors Favoring CNMD Stock

Revenues Likely to Ride Macro Tailwinds: CONMED delivered better-than-expected fourth-quarter results, wherein earnings and revenues beat their respective Zacks Consensus Estimate. The fourth quarter witnessed the positive impact of strong demand for CNMD’s AirSeal insufflator, which is expected to continue driving top-line growth in the upcoming quarter as well.

Per the fourth-quarter earnings call, CNMD is prioritizing growth areas like AirSeal, Buffalo Filter, BioBrace, and the Foot & Ankle portfolio, with significant investments and strategies aimed at strengthening these high-potential segments in 2025.

Meanwhile, the orthopedics segment also played a critical role, achieving a 1.8% year-over-year global increase, with the U.S. market leading at 5.2%. This growth was supported by ongoing improvements in supply-chain management and efforts to enhance product availability. The general surgery division saw a mixed performance, with a 7.4% revenue rise in the United States, further bolstered by an 11.9% improvement internationally. Growth in general surgery and orthopedic supply-chain efficiency could enable the company to meet increased customer demand and capture additional market share.

Expanding Margins Look Promising: Margin expansion was another highlight for the quarter, reflecting operational efficiencies and disciplined cost management by CNMD. The adjusted gross margin improved to 57.3%, marking a 160-basis-point increase from the previous year’s level. This can be attributed to a favorable product mix and strategic measures to optimize production. However, gross margins for 2025 are expected to remain flat due to continued supply-chain challenges and currency headwinds, with little room for further short-term improvements.

Additionally, adjusted selling, general, and administrative (SG&A) expenses were 35.6% of sales, representing a 110-basis-point decline year over year, underscoring the company's commitment to effectively managing expenses. These not only contributed to profitability but also bolstered CONMED’s capacity to sustain leveraged earnings growth, positioning CNMD for continued financial strength.

Solid Recurring Revenue Base: CONMED's performance is bolstered by its business model, with approximately 85% of revenues coming from recurring sales of single-use disposable products. These items are being increasingly favored by hospitals and clinics as they reduce sterilization costs, minimize infection risks and lower post-operative care expenses.

The remaining 15% of revenues comes from capital equipment sales, such as surgical tools and imaging systems. This, in turn, drives the demand for complementary single-use products, further contributing to CONMED's sustained growth.

Downsides

Regulatory Requirements: CONMED may face potential downsides due to regulatory scrutiny and compliance challenges associated with its classification as a manufacturer of Class II medical devices. The company is subject to inspections by the FDA and international regulatory bodies, which can lead to significant costs in response to compliance issues. These factors could negatively impact CNMD’s operations and financial performance.

Data Security Threats: CONMED may be at risk due to its heavy reliance on information technology (IT) systems for managing sensitive business-related and customer data. The company faces significant cybersecurity threats that could jeopardize the security, confidentiality and integrity of its data. These factors could negatively impact CONMED's operational stability and financial performance, posing a downside for investors.

CONMED Corporation Price

CONMED Corporation price | CONMED Corporation Quote

Estimate Trend

CONMED is witnessing a stable estimate revision trend for 2025. In the past 30 days, the Zacks Consensus Estimate for earnings has remained unchanged at $4.35 per share.

The Zacks Consensus Estimate for first-quarter 2025 revenues and earnings per share is pegged at $313.7 million and 81 cents, respectively, suggesting 0.5% and 2.5% growth from the year-ago reported numbers.

Stocks to Consider

Some better-ranked stocks in the broader medical space are Masimo MASI, Boston Scientific BSX and Align Technology ALGN. At present, Masimo sports a Zacks Rank #1 (Strong Buy), whereas Boston Scientific and Align Technology carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.

Masimo’s shares have declined 9% so far this year. Estimates for MASI’s 2024 earnings per share (EPS) have increased 1.2% to $4.10 in the past 30 days. MASI’s earnings beat estimates in each of the trailing four quarters, the average surprise being 17.1%. In the last reported quarter, it posted an earnings surprise of 16.6%.

Estimates for Boston Scientific’s 2025 EPS have jumped 2.9% to $2.85 in the past 30 days. Shares of the company have gained 2.5% so far this year against the industry’s decline of 2.2%. BSX’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 8.25%. In the last reported quarter, it delivered an earnings surprise of 7.69%.

Estimates for Align Technology’s fiscal 2025 EPS have remained stable at $9.99 in the past 30 days. Shares of the company have declined 26.5% so far this year compared with the industry’s 3.4% decline. ALGN’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 3.53%. In the last reported quarter, it delivered an earnings surprise of 0.41%.

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This article originally published on Zacks Investment Research (zacks.com).

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