Greatbatch, Inc. GB recently announced the receipt of FDA approval for its Algovita Spinal Cord Stimulation (SCS) System, used for the treatment of persistent intractable pain in the trunk/torso and/or limbs.
The Algovita SCS System is the first FDA approved product designed by Greatbatch’s QiG Group subsidiary. Notably, Greatbatch is on track with the spin-off of its subsidiary, which will be known as Nuvectra post process completion.
Notably, the Algovita SCS system received CE Mark in 2014 and is currently in limited roll out in Europe. After the potential QiG spin-off (anticipated in first quarter of 2016), the new entity will focus on rolling out the Algovita SCS system in the U.S.
We believe that the new FDA approval will significantly boost the product portfolio of Nuvectra and help it to compete in the domestic market. However, it is expected to face competition from St. Jude Medical’s STJ Proclaim Elite SCS System, which received FDA approval last month.
From the perspective of Greatbatch, we believe that the strategic spin-off of QiG Group will help it to focus on its core operations and allocate its resources in a more efficient manner. This, in turn, should propel significant organic growth over the long term. Additionally, post spin-off, management expects a reduction in operating expenses of $12 million to $16 million on an annualized basis. This will help improve the bottom line in the quarters ahead.
Greatbatch, meanwhile, is focused on improving its own product suite and expanding its business. This October, the company entered into a definitive agreement to buy privately-owned Lake Region Medical for about $1.73 billion in cash and stock. The transaction is expected to close in the fourth quarter of 2015.
The deal is expected to significantly boost the combined company’s product portfolio which will allow it to operate on a much larger scale across different geographies. Meanwhile, the joint entity is likely to employ more than 9,000 individuals worldwide and will operate in the U.S., Latin America, Europe and Asia Pacific.
The acquisition is also anticipated to provide significant operating synergies, which will, in turn, boost earnings. In fact, management at Greatbatch expects the acquisition to help adjusted earnings per share achieve double-digit growth rate in 2016. Post that, it is expected to be even more accretive.
Additionally, net annual synergy for operating profit is expected to be $25 million in 2016 and increase to at least $60 million by 2018. The combined company is also poised to generate significant cash flow, which will help improve financial flexibility.
Zacks Rank & Key Picks
Greatbatch carries a Zacks Rank #3 (Hold).
A couple of better-ranked stocks in the same space include Masimo MASI and Natus Medical BABY. Both the stocks sport a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment