Shares of medical device maker NuVasive, Inc. (NASDAQ: NUVA) represent a particularly compelling opportunity, according to SunTrust Robinson Humphrey.
The NuVasive Analyst
The NuVasive Thesis
Nuvasive is the fourth-largest spine surgery company and the largest pure play spine company operating in an estimated $10-billion market worldwide, Krum said in a Tuesday initiation note. (See the analyst's track record here.)
Nuvasive is "a stock to watch in 2020" due to SunTrust's expectations that revenues and earnings growth will accelerate from 2019 levels, the analyst said.
NuVasive has the ability to stabilize and strengthen its top-line growth profile, and it will subsequently begin to focus on its long-term earnings potential, Krum said.
The revenue acceleration will be driven by improvement in the company's core spine implant business, the analyst said.
SunTrust sees the rollout of the Pulse spine surgery platform paired with a growing level of focus on robotics capabilities as meaningful catalysts for the business.
Pulse should add $10 million in revenue for 2020, Krum said, adding that the potential halo effect on the core spine business is not well appreciated.
Nuvasive's operating margin and free cash flow generation are best-in-class, the analyst said.
Following a recovery in 2019, NuVasive's operating margin is likely to expand 60 basis points year-over-year to 15.8%, Krum said. Over the next five years, the analyst said the metric could push toward 20%.
Despite the stock's more than 70% rally from its January 2019 lows, it still trades in-line with September 2018 levels and a discount to peers, Krum said.
"This valuation profile makes shares of NuVasive particularly compelling, as one of the few relative "value" stocks in the high-multiple MedTech, SMID-cap world."
NuVasive Price Action
NuVasive shares were trading 1.01% higher at $78.88 at the time of publication Wednesday.