Here's Why You Should Hold on to Teleflex (TFX) Stock Now
Teleflex Incorporated TFX has been gaining from strong operating segments as well as its performance in the international markets. Also, a series of regulatory approvals and acquisitions bodes well for the company. However, we are concerned about its escalating expenses as well as the stiff competitive landscape it operates in.
Over the past year, shares of the Zacks Rank #3 (Hold) company have outperformed its industry. Teleflex has lost 7.5% compared with the 17.6% fall of its industry. Also, it has outperformed the S&P 500’s 10.2% fall during the same period.
The renowned provider of medical technology products has a market capitalization of $12.98 billion. The company projects 15% growth for the next five years and expects to maintain its strong performance. Further, it delivered a positive earnings surprise of 4.2%, on average, over the trailing four quarters.
Let’s delve deeper.
Regulatory Approvals: We are upbeat about the regulatory approvals received by Teleflex over the past few months. The company received the FDA’s nod for the Wattson Temporary Pacing Guidewire in January, which is the first commercially available bipolar temporary pacing guidewire, specifically designed for use during transcatheter aortic valve replacement and balloon aortic valvuloplasty.
Further, Teleflex received the FDA’s clearance for an expanded indication for the use of the UroLift System to treat enlarged prostates (between 80cc and 100cc). It provides faster relief and recovery from the symptoms of benign prostatic hyperplasia as it is a minimally invasive in-office treatment.
Q4 Results: We are optimistic about the company’s better-than-expected results in the fourth quarter of 2019. The company’s robust rise in revenues on balanced growth across the majority of segments and geographies buoys optimism. The continued UroLift momentum in the fourth quarter was impressive. Expansion of gross margin also bodes well.
Acquisitions: We are upbeat about Teleflex’s acquisition of IWG High Performance Conductors, which is a medical tubing and wire component manufacturer. Teleflex expects to strengthen its OEM business segment through the buyout.
As part of the acquisition, Teleflex will be provided with two highly complementary but differentiated capability platforms, which include ultra-fine wired tubing components for therapeutic applications in fast-growing markets such as electrophysiology, peripheral management and pain management. Also, the OEM segment will have a platform, with ultra-fine wire components for conducting electricity in healthcare applications.
Downsides
Escalating Expenses: We are concerned that Teleflex’s top-line growth in the fourth quarter was partially dented by a continued rise in overall expenses on increased research and development expenses. Further, the company’s implementation of various restructuring, realignment and cost-reduction initiatives — including facility consolidations, organizational realignments and reductions in the workforce — further increases expenses, which in turn are putting pressure on Teleflex’s operating margin.
Competitive Landscape: The company competes with companies with various scales of production like small start-ups to biggies with significantly greater financial resources. Also, extensive product research and development, and rapid technological advances characterize the market it operates in.
Estimate Trend
The Zacks Consensus Estimate for Teleflex’s first-quarter 2020 revenues is pegged at $627.2 million, suggesting a 2.2% rise from the year-ago reported number.
Key Picks
Some better-ranked stocks from the broader medical space are ResMed Inc. RMD, National Vision Holdings, Inc. EYE and Phibro Animal Health Corporation PAHC.
ResMed has a projected long-term earnings growth rate of 14.4%. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
National Vision’s long-term earnings growth rate is estimated at 10.7%. The company presently has a Zacks Rank #2.
Phibro’s long-term earnings growth rate is estimated at 2.1%. It currently flaunts a Zacks Rank #1.
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