EUR 850.00 For Business Accounts Only

Morningstar | CNMD Updated Forecasts and Estimates from 04 Feb 2019

Conmed reported fourth-quarter and full-year 2018 results that exceeded our revenue expectations, while falling roughly in line with our outlook for operating profitability. As we roll and update our model, we'll likely raise our fair value estimate by roughly 10% to account for the cash flows received since our last update, along with slightly higher margin assumptions helped by the inclusion of the pending Buffalo Filter transaction.

The firm's strong performance has been fairly broad-based throughout the year. Growth rates for both its domestic and international franchises have improved, with the general surgery segment consistently in the double digits, supported especially by strength in the U.S. market. The Conmed of 2018 looked very different from the Conmed of years prior, and we credit management's methodical turnaround strategy with finally delivering more consistent results. An improved salesforce and increased spending on product development have been the underlying drivers of accelerating growth, in our view, as new products now account for roughly a fourth of total company sales, up from nearly 20% just a year ago. While the company remains a relatively small player in a highly competitive market, we think a reinvigorated research and development program can go a long way toward bolstering improved financial outcomes. Notably, it seems that many of the firm's incremental investment needs have been satisfied, as management intends to allow any operating outperformance to flow through to the bottom line--a stark contract to last year's message that focused on the need to reinvest.

Management's initial organic guidance for 2019 is consistent with our forecast, which calls for 5.4% revenue growth out of the base business over the coming year. We think our model reasonably reflects our optimistic outlook for the firm's prospects, but we continue to view the stock as fully valued at current levels.