Is the Worst Over for This Cheap Growth Stock?

In the healthcare industry, medical technology companies flex their innovation muscles to adapt to market shifts and engage with futuristic technologies, such as artificial intelligence (AI) and machine learning (ML), to make breakthroughs in automation, alternative transportation, and beyond. According to Statista, the medical technology market is expected to expand at a compound annual growth rate of 5.2% from 2024 to 2028.

Trends like an aging demographic, escalating healthcare awareness, and improved access to higher-quality health options are paving the way for increased innovation and investment in this sector. Additionally, some medtech stocks can provide a unique benefit to investors with their niche dominance and under-the-radar status, offering diverse growth opportunities within the healthcare sector.

One standout in this arena is CONMED Corporation (CNMD), known for its global surgical device prowess. However, the stock has seen a significant slump over the past year, trading nearly 47.5% lower than its 52-week high of $138.47, which it achieved in mid-June last year.

Despite this slump, CNMD shares have already rallied over 19% since their late-April lows. Has the growth stock finally found bottom? Let's have a closer look.

About CONMED Stock

Incorporated in 1970, Florida-based CONMED Corporation (CNMD) is a medical technology company that develops, manufactures, and sells surgical devices and related equipment for surgical procedures globally. Valued at $2.2 billion by market cap, the company is renowned for top-notch products and trusted by healthcare professionals in orthopedic, laparoscopic, robotic & open surgery, gastroenterology & pulmonology, and cardiology & critical care. A majority of its revenue, about 85%, comes from single-use products widely utilized in surgical procedures, making it a trusted name in healthcare worldwide.

Shares of CONMED have dipped 33.5% on a YTD basis, significantly lagging behind the broader S&P 500 Index’s ($SPX)gains of 9.4% and the S&P 500 Healthcare Sector SPDR’s (XLV)5% returns over the same time frame.

The company’s annualized dividend of $0.80 translates to an attractive 1.12% dividend yield. Plus, the company maintains a conservative dividend payout ratio of 21.9%, which allows sufficient flexibility for growth initiatives and potential dividend boosts in the future.

Priced at 16.36 times forward earnings and 1.74 times sales, CONMED trades at a discount to the healthcare equipment industry median and its own five-year averages. Moreover, its price/earnings to growth ratio of 0.67x is lower than its peer, Mckesson Corp (MCK), which trades at 1.42.

CONMED’s Q1 Beats Wall Street Projections

The medtech company reported impressive Q1 earnings results on April 24, with revenue rising 5.7% annually to $312.3 million, beating Wall Street's estimates by 1.8%. While domestic revenue spiked 7.2%, international revenue increased 3.8%. Its adjusted EPS grew 19.7% year over year to $0.79, surpassing analysts' estimates by 6.8%.

Moreover, the quarter witnessed steady surgical volumes and promising performance of BioBrace in the foot and ankle space. CONMED's orthopedic surgery segment revenue surged 2.8% annually, primarily driven by growth in procedure-specific and BioBrace product offerings, while its general surgery segment revenue rose 8% due to AirSeal and biliary product offerings growth.

CONMED’s Chair of the Board, President, and CEO, Curt R. Hartman, believes, “We remain well positioned with a compelling and diverse portfolio to drive continued growth across the markets we serve.”

Despite a strong Q1, CONMED shares took a hit on April 25, dropping 11.6% due to reduced fiscal 2024 guidance. The company expects revenues to range between $1.33 billion and $1.355 billion, compared to the prior guidance range of $1.34 billion and $1.365 billion. Adjusted EPS is expected between $4.25 and $4.35, compared with the prior range of $4.30 to $4.40.

Analysts tracking CONMED predict its EPS to grow to $4.30 in fiscal 2024, up 24.6% annually, and then another 28.1% to $5.51 in fiscal 2025.

What Do Analysts Expect for CONMED Corporation Stock?

Analysts at multiple brokerage firms trimmed their price targets for CONMED after its Q1 earnings results. Needham analyst Michael Matson cut the stock’s price target to $107 from $129, but maintained his “Buy” rating on CONMED. Matson's rating reflects his view that despite potential competition from Intuitive Surgical's (ISRG) new da Vinci 5 system, AirSeal growth will remain strong due to increased placements and rising utilization of existing units.

But overall, CNMD has a consensus “Moderate Buy” rating. Of the eight analysts covering the stock, three advise a “Strong Buy,” two suggest a “Moderate Buy” rating, and the remaining three give a “Hold.” 

The average analyst price target for CONMED is $92.38, indicating a potential upside of 26.6%. The Street-high target price of $132 suggests that the stock could rally as much as 80.9%.