This medical device company beat analysts’ earnings estimates by eleven cents in its latest quarter.
NuVasive (NUVA)
From Canaccord Genuity
NuVasive is a medical device company focused on the design, development, and marketing of products for the surgical treatment of spine disorders. The company was founded in 1997 and began commercializing its products in 2001.
NuVasive’s current principal product offering includes a minimally disruptive surgical platform called Maximum Access Surgery, or MAS, as well as products in the areas of fusion procedures in the lumbar and thoracic spine, cervical fixation products, and motion preservation initiatives such as total disc replacement and nucleus-like cervical disc replacement. The current product portfolio includes a range of biologics and spine implants such as rods, plates and screws.
We reiterate our BUY rating on NuVasive following the 2015 analyst day where management laid out its near- and longer-term financial goals, which aim to drive NuVasive to $1B in revenues and beyond. Specifically management laid out numerous long-term goals that include:
• Constant currency organic revenue growth in the mid- to high-single digits with a doubling of the % of revenue contribution from OUS
• Non-GAAP operating profit margins to ~25% on $1B+ revenues (16.3% in Q3/15)
• Adjusted EBITDA margins to ~32% (26.7% in Q3/15)
• Tax rate reduction to ~30% from 43% driven by international scale
• Free cash flow growing at a 25% CAGR
• 2016 guidance calls for revenues of $870M and non-GAAP operating profit margin expansion of ~100bps from 2015
Management addressed these goals specifically through a targeted procedural and product strategy, international expansion in key markets, and improved operational efficiencies. We believe the targeted strategies are executable and note that they do not include M&A but are rather purely organic. Furthermore, we note that management highlighted guidance is a “minimum” expectation for investors, setting the stage for continued outperformance.
Net, net we came away more positive, with improved insight into management’s expectations for the future of NuVasive despite a push-out on the gross margin improvements to 2017 vs our 2016 expectation. Most importantly, it was clearly stated that NuVasive is taking a very pro-active approach with a focus on procedural solutions and data to maintain and extend its position as a best-in-breed pure-play spine company.
We are raising our price target to $59 from $58 based on an EV/EBITDA multiple of 13.2x to our 2016 EBITDA estimate of $233.3M. We assume $451.2M in cash, $402.5M in debt, and 53.2M shares outstanding.
William J. Plovanic, Kyle Rose, and Ryan Zimmerman, Canaccord Genuity Research, www.canaccordgenuity.com, 617-371-3711, December 11, 2015