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Integra Gains on Global Growth, Hurricanes Hamper Business

On Oct 31, we issued an updated research report on Integra LifeSciences Holdings Corporation IART. The stock currently has a Zacks Rank #3 (Hold).

Integra LifeSciences exited the third quarter of 2017 on a disappointing note, with both earnings and revenues missing the respective Zacks Consensus Estimate. Also, contraction in adjusted operating margin and adjusted gross margin adds to the woes.

On a positive note, over the last six months, shares of Integra Lifesciences have been trading slightly above the broader industry. The stock has gained 0.8% against the 0.8% loss of the broader industry over the same time frame. A consistently strong performance of its Orthopedics and Tissue Technologies’ segment buoys optimism.

We believe the company’s recent product diversification bolstered investors’ confidence, thereby boosting the stock price further. Of late, within Orthopedics and Tissue Technologies segment, the company launched several new regenerative products for the surgical reconstruction market. In the third quarter of 2017, the company registered mid-single digit growth in Regenerative Technologies franchise, primarily banking on the addition of Derma Sciences and strong growth in patient skin portfolio.

Within tissue ablation, the global launch of CUSA Clarity is getting good response in the United States and abroad. Integra LifeSciences expects all these products to drive growth in 2017 and beyond.

We are also optimistic about the fact that Integra LifeSciences has successfully witnessed certain key overseas developments, despite facing foreign exchange fluctuations across its international business. Also, the company has adopted several near-term objectives under its three-pillar strategy. Management also expects to gain market traction through strategic partnerships and acquisitions.

On the flip side, foreign exchange and stiff competition pose as potent headwinds. Also, many of Integra LifeSciences’ manufacturing, development or research facilities are vulnerable to natural disasters or unprecedented events, which depending on their severities, might force the company to cease development and manufacturing of some or all of its products.

It is important to note that last quarter, the impact of back-to-back hurricanes has grossly affected wound care and orthopedic procedures, particularly in Florida. In addition, the company was unable to fulfill certain private label orders because of the disruption to operations in Puerto Rico, leading to a double-digit decrease in private label sales in the third quarter.

Key Picks

A few better-ranked stocks in the broader medical sector are PetMed Express, Inc. PETS, Luminex Corporation LMNX and Intuitive Surgical, Inc. ISRG. Notably, PetMed and Luminex sport a Zacks Rank #1 (Strong Buy), while Intuitive Surgical carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PetMed has a long-term expected earnings growth rate of 10%. The stock has soared roughly 54% over the last six months.

Luminex has a long-term expected earnings growth rate of 16.3%. The stock has gained 6.3% over the last three months.

Intuitive Surgical has a long-term expected earnings growth rate of 9.1%. The stock has surged 33.5% over the last six months.

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