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NuVasive Q4 Preliminary Results Fail to Cheer Investors


The market is not content with NuVasive, Inc.’s NUVA unimpressive preliminary results for the fourth quarter and 2017. After the results were announced on Jan 8, the stock lost 10.8% to close the session at $53.26 on the next day.

Prelim Results at a Glance

We believe the dull revenue expectation for the fourth quarter 2017 has dampened investors' spirits. NuVasive announced preliminary revenues of approximately $272 million for the quarter, flat year over year. The Zacks Consensus Estimate for fourth-quarter revenues is pegged at $272.74 million.

Revenues for 2017 are expected at $1.03 billion, reflecting 7% year-over-year growth. The estimates happen to be in line with the company’s guidance. The Zacks Consensus Estimate for 2017 revenues stands at $1.03 billion.

In view of the continued impact of hurricane Maria in Puerto Rico in the fourth quarter as well as an anticipated decline in U.S. procedural volumes, NuVasive had issued an updated 2017 guidance during the third-quarter 2017 earnings call.

The company had expected to report revenue growth of 7.2%, at CER for 2017. The projected revenue figure was approximately $1.030 billion. NuVasive also projects its 2017 adjusted earnings per share (EPS) to be pegged at $1.91. Additionally, adjusted operating margin for the year is currently expected at 16.6%. The Zacks Consensus Estimate for 2017 EPS stands at $1.91.

However, the company continues to witness sequential growth in international revenues. Notably, on the back of continued innovation, NuVasive has witnessed more than 20% increase in international sales in the fourth quarter for the fifth sequential quarter.

NuVasive, Inc. Price and EPS Surprise

Preliminary Outlook for 2018

NuVasive has also provided the initial guidance for full-year 2018 as well. The company expects mid-single digit revenue growth in 2018 over the 2017 figure. The Zacks Consensus Estimate for 2018 revenues is pegged at $1.09 billion. Moreover, the company expects non-GAAP operating margin expansion of approximately 100 basis points. Also, adjusted EBITDA is expected in the $290-$300 million range.

The latest U.S. tax legislation, which slashes corporate tax rates from 35% to 21%, is expected to result in significant tax savings for NuVasive. Without the tax rate cut, the company would have to face a corporate tax rate of 33% on a non-GAAP basis in 2018.

The company will also take synergies from the December 2017 acquisition of privately-held intraoperative neurophysiological monitoring (IONM) service provider SafePassage into account while issuing the guidance for 2018. The buyout is on track and is expected to close in January 2018 on fulfillment of certain customary closing conditions. Per NuVasive, the acquisition will strengthen the company's intraoperative neuromonitoring business line. The consolidated giant is expected to deliver services to more than 1,000 customers and 3,000 surgeons. Moreover, following the acquisition of SafePassage, NCS is likely to aid more than 100,000 IONM cases every year in the United States.

Post closure of the deal, the transaction is expected to prove accretive to the company's EPS in 2018 and beyond. It is also expected to support NuVasive’s long-term targets for revenue growth and expansion of adjusted operating and EBITDA margins.

Zacks Rank & Key Picks

NuVasive carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader medical sector are Integer Holdings Corporation ITGR, Bio-Rad Laboratories, Inc. BIO and Intuitive Surgical, Inc. ISRG.

Bio-Rad Laboratories flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. The company has a long-term expected earnings growth rate of 25%.

Integer Holdings has a long-term expected earnings growth rate of 15%. The stock carries a Zacks Rank #2 (Buy).

Intuitive Surgical has a long-term expected earnings growth rate of 9.2%. The stock carries a Zacks Rank #2.

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