NuVasive: Waiting For The Sun to Shine, Again
Gargi is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
For a small cap spinal-orthopedic device maker NuVasive (NASDAQ: NUVA), the journey from being touted as the "perfect stock" by analysts to being written off by the same people must have come as a hard blow. The disappointing third quarter earnings announced last Wednesday has not only invited concern among shareholders, but also cast a shadow on the company’s future prospects.
Not Far from Target but Still a Miss
The estimated $154 million in revenue the company was expected to make was out of NuVasive’s reach; the company only made $147 million. Although the deviation translates to a 5% dip mathematically, the reasons for such a miss is what NuVasive needs to worry about. After all, for a company that has shot up 80% this year, such a drop leads to anxiety over its growth in the coming years.
Crux of the matter
A few of the major reasons for this miss as cited by management were physician-owned distributors (PODs), as well increased delays and denials by insurers that ate away at NuVasive’s revenues.
Another thorn in NuVasive’s side seems to be the rising sales of other small companies, namely Globus Medical, Orthofix International N.V., and Biomet EBI/Spine, all of which are already marking their territory in the extremely competitive spine industry.
The fact that NuVasive had to battle out various lawsuits pertaining to its different products, including a product from Osteocel, NuVasive’s recent acquisition, did not help its position either.
With the influx of smaller companies and higher discounts, companies such as NuVasive which have been around for some time in the spine market might have to change their outlook or strategies to maintain their positions in this extremely volatile market.
The Company takes a Hit
The disappointing results have led to the stock taking an immediate beating. NuVasive’s stock fell 33% to $15.15, after touching as low as $14.55 in the biggest intraday drop the company has seen since May 2004. Conversely, the fact that market giants and rivals such as Johnson and Johnson, Stryker, and Medtronic continued to maintain their stronghold in the market means that it’s time for NuVasive to bucks up and address its problems right at its root.
The Bigger Picture-Ain’t too bad
One needs to remember that NUVA is neither a technology nor financial company. Hence, the supply versus demand ratio will never diminish for such a sector: people will grow old, fall sick and require spinal care.
Having said that, the persistent problem of reimbursement delays and availability of cheaper products may require NuVasive to do a thorough review and rework of its present market practices if it wants to bounce back.
Given the fact that shares of NuVasive have slumped in lieu of its recent announcement and the market is exuding skepticism and negativity towards the company, this could be the best time to buy some shares at a good bargain. However, obviously such a deal has its own set of risks attached to it.
If you ask me, I’d say there is light at the end of tunnel for NUVA and it is only a matter of time till it reaches a favorable position with the market, the analysts, and the buyers yet again.
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