OrthoPediatrics Could Win By Tapping A Massive, Underserved Market, Says Stifel

Orthopediatrics Corp KIDS is poised to achieve strong top-line growth due to its exclusive focus on the sizeable and largely underserved $2.5 billion pediatric orthopedic market, according to Stifel. 

Stifel initiated coverage of Orthopediatrics with a Buy rating and a $23 price target for the shares. The valuation represents a 5.5 times enterprise value to revenue multiple, applied to Stifel's 2019 revenue estimate for Orthopediatrics of $63.6 billion and discounted 10 percent to the end of 2018.

The pediatric orthopedic market, including trauma and deformity, complex spine and sports medicine, offers the most comprehensive and still-expanding portfolio of pediatric orthopedic implants and instruments to treat a wide array of orthopedic conditions, said analyst Rick Wise. 

Capitalizing on this opportunity, Wise said the firm can deliver top-line CAGR in the solid high teens, suggesting revenues that would icrease from an estimated $45 million this year to $98.5 million in 2022. This would put Orthopediatrics above the average revenue growth among its peers. 

"A still-expanding portfolio of pediatric orthopedic implants plus post-IPO capital and subsequent investment in growth driving instrument sets, as well as the concentrated pool of pediatric orthopedic surgeons, should help the company accelerate growth and further penetrate the sizable pediatric orthopedic market," Wise said. (See Wise's track record here.) 

OrthoPediatrics sells the broadest offering of implants and instruments designed specifically for children, offering 21 surgical systems, Wise said. Over time, the company's top-line growth will accelerate, fueled by new product introductions and entry into new pediatric orthopedic market opportunities, the analyst said. 

Given that pediatric orthopedic surgeons are generalists treating a wide range of conditions, surgeons represent a single customer call point for Orthopediatrics — one that utilizes the company's entire portfolio, Wise said. 

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