Globus Medical's Untapped Potential Beyond The NUVA Transaction; Analyst Turns Bullish

Stifel analyst Mathew Blackman upgraded Globus Medical, Inc. GMED to Buy from Hold, lowering the price target to $61 from $65.

Overall, Blackman believes GMED is arguably the "best-in-class" publicly traded Spine company, underscored by a decade-plus of crisp clinical and commercial execution driving sustained, well-above-market growth and unmatched 30%+ EBITDA margins. 

The story has evolved, though, with the NUVA transaction bringing pessimistic sentiment and a discounted valuation, the analyst adds. 

The analyst notes that the market has a pessimistic view of GMED+NUVA, with NewCo valuation well below historical levels for both standalones.

While acknowledging the risks of this transaction, Blackman thinks GMED should get more credit than is currently being discounted.

In the longer term, the analyst forecasts that the combined companies could sustain higher growth than currently projected. 

With valuation near lows, it feels like the "bad" is adequately reflected, and the "good" represents real potential upside for investors, Blackman adds.

Blackman thinks the GMED upgrade is likely "early" and that identifying a sentiment-shifting catalyst is challenging. 

But, the analyst's modeling/valuation work suggests that GMED shares discount most of the integration risks at current levels.

For FY23, the analyst raised the revenue estimate to $2.36 billion from $1.13 billion.

For FY24, Blackman increased revenue estimate $2.44 billion from $1.24 billion.

Price Action: GMED shares are trading higher by 3.03% to $53.17 on the last check Tuesday.