Report
Jake Strole
EUR 850.00 For Business Accounts Only

Morningstar | Integra's Performance Should Accelerate Following Full Integration of Codman by Year-End

In our view, management has built Integra's narrow economic moat through opportunistic portfolio optimization and thoughtful internal investment. After building a core competency in regenerative therapies, management added businesses and products via carve-outs and acquisitions of whole companies. The result is a rather patchwork enterprise that is finally coming together through the restructuring of the firm's sales organization in combination with the addition of Codman Neurosurgery. We think Codman is management's capstone acquisition that gives us confidence in the firm's narrow economic moat. Now a clear leader in the neurosurgery market, Integra is in a better position to take advantage of the switching costs that are primarily the result of physicians’ preference for its products. As healthcare providers continue to rationalize vendor relationships, we think Integra is better equipped to maintain its positioning than most similar-size companies as a function of this strategy.Regarding the firm's legacy tissue technologies business, we think management is taking the correct approach but have yet to see evidence that this franchise has developed a moat. Wound care remains a relatively fragmented industry that depends heavily on sales reps getting in front of acute and outpatient physician practices to encourage the use of its products. Additionally, the high gross margin profile across the industry presents an enticing opportunity for companies to compete on price alone. Management is working to combat these shortfalls by investing in clinical trials to produce meaningful data that both aids its salesforce and supports the value of its offering. While still in the early stages, we think management has an opportunity to build a portfolio of intangible assets that could eventually support a moat.Finally, we think management will continue to invest both organically and inorganically behind its fledgling extremity orthopedics business that, like neurosurgery, benefits from switching costs. With a balance sheet set to return to more normalized leverage in 2019, we wouldn’t be surprised to see another deal in this area to shore up the business.
Underlying
Integra LifeSciences Holdings Corporation

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.

Provider
Morningstar
Morningstar

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.

Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.

We have operations in 27 countries.

Analysts
Jake Strole

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