On Apr 13, 2015, we initiated our coverage on NuVasive, Inc. NUVA. We are impressed with the continued strong growth visible across all the product lines and the expansive geographic reach of the company.
Based on market share-taking strategy, the company reflected balanced growth in the U.S. and outside. While lumbar and biologics continued to grow well in the U.S., NuVasive demonstrated strong performance in Asia-Pacific, Latin America and EMEA. According to the company, the gradual shift in spine market toward minimally invasive surgery and increase in international access to healthcare has provided NuVasive with huge opportunity for accelerated growth outside the U.S.
We are also encouraged by the huge scope of growth in spine market. According to NuVasive, the spine fusion market, including biologics, is estimated to be approximately $9.0 billion globally in 2015. This market is gradually experiencing greater adoption and increasing demand for the company’s line of surgical alternatives with less tissue disruption.
In addition, a strong financial position enables the company to enhance shareholders’ value. The company has been experiencing solid margin expansion primarily on the back of continued strong operational gains driven by improved asset efficiencies. The asset enhancement was a result of NuVasive tracking the utilization of assets in the field and managing product transitions more effectively. NuVasive expects this growth process to continue in 2015 as well.
On the flip side, pricing continues to be a major headwind for NuVasive as it experiences declining prices for its products due to increasing competition in the spine market; pricing pressure experienced by hospital customers; and increased market power of hospital customers as the medical device industry consolidates.
For 2015, while the company expects continued progress from in-sourcing efforts that should drive approximately 50 basis points of improvement, this may be dampened by continued mix and pricing pressure. NuVasive projects a negative 2% pricing impact on the gross margin in 2015, which is relatively consistent with the year-ago level. Also, the competitive landscape remains tough.
The stock currently carries a Zacks Rank #2 (Buy).
Key Picks from the Sector
Some other top-ranked stocks in the broader medical sector are SurModics, Inc. SRDX, LeMaitre Vascular, Inc. LMAT and Phibro Animal Health Corporation PAHC. All of these three stocks carry a Zacks Rank #1 (Strong Buy).
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