Morningstar | Integra's 1Q Results Meet Expectations, but Growth Needs to Accelerate to Achieve Full-Year Outlook
Integra Lifesciences posted first-quarter results that bracketed our expectations overall, and we don't expect our modest model adjustments to affect our $59 per share fair value estimate. While reported revenue growth of 70 basis points isn't going to make the headlines, foreign exchange headwinds of roughly 150 basis points and the impact from discontinued or divested product lines accounted for the reported shortfall versus underlying organic growth of 3.1% for the narrow-moat enterprise.While the firm has a steep trajectory to climb throughout the year to meet management's reiterated 5% organic growth projection, it seems some problem pieces of the business have largely turned a corner early in 2019. Specifically, Integra's orthopedic business returned to organic growth after roughly a year of persistent declines. It seems management's salesforce realignment efforts over the last year or two are beginning to pay dividends, and we expect to see similar acceleration in the firm's tissue franchise over the coming quarters. Additionally, management has continued to stabilize the acquired Codman business in international geographies serviced by third-party distributors that dropped the ball late last year. Full integration of these markets should be finalized in the third quarter.
We applaud the firm's continued investment behind running clinical trials to support its regenerative technologies business. While switching costs in the firm's surgical segment underpin its economic moat, the development of more comprehensive data within its tissue business could help differentiate its product offering among peers in the chronic wound market where data supporting a product's efficacy isn't always readily available. Management highlighted two ongoing studies that should read out over the coming years, which will potentially help support product utilization and reimbursement.
Integra LifeSciences Holdings is a medical devices company engaged in the development, manufacturing, and marketing of surgical implants and medical instruments. The company manufactures and sells its products in the following two reportable business segments: Codman Specialty Surgical, which includes technologies in dural repair, ultrasonic tissue ablation, intracranial cranial pressure monitoring, hydrocephalus management, and cranial stabilization systems; and Orthopedics and Tissue Technologies, which focus on addressing soft tissue, nerve, and tendon repairs as well as reconstruction in the hand, wrist, elbow, shoulder, ankle and foot.
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