Here's Why You Should Hold on to Teleflex (TFX) Stock for Now
Teleflex Incorporated TFX has been gaining from robust segmental and international growth. However, its reduced revenues in two business segments and the EMEA region coupled with a contraction in the adjusted operating margin are concerning.
Over the past year, shares of the Zacks Rank #3 (Hold) company have outperformed its industry. The company has gained 28.2% compared with 10.7% growth of its industry. Also, it has outperformed the S&P 500’s 21.1% rally during the same period.
The renowned provider of medical technology products has a market capitalization of $16.97 billion. The company projects 14.3% growth for the next five years and expects to maintain its strong segmental performance. Further, it delivered a positive earnings surprise of 4.15%, on average, in the trailing four quarters.
Let’s delve deeper.
Q4 Results: Teleflex reported better-than-expected results for fourth-quarter 2019. We are encouraged by the company’s robust rise in revenues on balanced growth across the majority of segments and geographies. The continued UroLift momentum in the fourth quarter was impressive. Expansion of gross margin also buoyed optimism.
Approvals: Of late, Teleflex has been receiving regulatory approvals for its products, which further favors the stock. In January, the company received the FDA’s nod for the Wattson Temporary Pacing Guidewire, which is the first commercially available bipolar temporary pacing guidewire, designed specifically for use during transcatheter aortic valve replacement and balloon aortic valvuloplasty.
In the same month, Teleflex received the FDA’s clearance for an expanded indication for the use of the UroLift System to treat larger prostates (between 80cc and 100cc). Being a minimally invasive in-office treatment, it provides faster relief and recovery from the symptoms of benign prostatic hyperplasia.
Acquisitions: We are optimistic about Teleflex’s recent acquisition of IWG High Performance Conductors, which is a medical tubing and wire components manufacturer. Through the buyout, Teleflex will likely strengthen its OEM business segment.
The acquisition will provide Teleflex with two highly complementary, 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: Teleflex’s top-line growth in the reported quarter was partially dented by a continued rise in overall expenses on increased research and development expenses. Further, the company implemented various restructuring, realignment and cost-reduction initiatives — including facility consolidations, organizational realignments and reductions in workforce. These expenses are, in a way, putting pressure on Teleflex’s operating margin.
Competitive Landscape: The company competes with various types of companies, ranging from small start-ups to larger and more established companies with significantly greater financial resources. Also, extensive product research and development, and rapid technological advances characterize the market it operates in.
Estimate Trend
Teleflex is witnessing a negative estimate revision trend for 2020. Over the past 90 days, the Zacks Consensus Estimate for its earnings has moved 0.4% south to $12.67.
The Zacks Consensus Estimate for the company’s first-quarter 2020 revenues is pegged at $654.7 million, suggesting a 6.7% rise from the year-ago reported number.
Key Picks
Some better-ranked stocks from the broader medical space are ResMed Inc. RMD, Medtronic plc MDT and Hill-Rom Holdings, Inc. HRC.
ResMed has a projected long-term earnings growth rate of 12%. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Medtronic’s long-term earnings growth rate is estimated at 7.4%. The company presently carries a Zacks Rank #2.
Hill-Rom’s long-term earnings growth rate is estimated at 11.1%. It currently carries a Zacks Rank #2.
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