Globus Medical Stands On The Brink Of Inflection; Leerink Upgrades

Considering Globus Medical Inc GMED on the verge of significant revenue growth acceleration, Leerink Swann upgraded the musculoskeletal medical device company to Outperform and increased its price target from $29 to $40.

The firm has been anticipating the ratings change since it downgraded Globus Medical in July.

“We had been of the mindset there would eventually be an organic growth acceleration pick-up later in 2017 and that the company would likely be worth re-visiting in mid-2017,” analysts Richard Newitter and Ravi Misra wrote in a note.

Now, Globus Medical is nearing its predicted inflection point, and Leerink foresees a shift from negative to positive growth in the first half of 2017. Additionally, it expects about 14 percent year-over-year revenue growth through the second quarter of 2018.

Source Of Strength

The company is expected to gain momentum from four factors: recent recruitment of experienced representatives, increasing profits from junior rep training programs, new product launches and new revenue from the robotics and trauma pipeline.

The latter is expected to generate $11 million in the second half of 2017 and another $35 million in 2018.

Reading The Numbers

While Globus Medical has already rebounded (nearly 43 percent) from 2016 lows and rests at an all-time high, Leerink still sees room to inch higher. Analysts noted that the present valuation doesn't well reflect sales growth acceleration and above-average profitability.

Because Globus Medical’s stock and multiple valuation are strongly correlated with periods of re-accelerated growth, it appears that the company’s multiple could expand from a discount to a premium.

“We expect GMED is about to generate its strongest growth rebound yet over the next 12 to 14 months,” Newitter and Misra wrote.

Risks to the thesis include a slowdown in the spine market and a delay in the company’s robotics and trauma pipeline.

Globus Medical was trading up 3 percent at $30.71 at time of publication.