Invest in NuVasive?
Dear Mr. Berko: My mother-in-law suffered with a bad back for over 20 years, resisting spine surgery because many of her contemporaries had rotten luck with it. However, one of her friends had a spine procedure six months ago and is still bragging about the good surgeon who performed it. The surgeon used a surgical platform developed by a company called NuVasive. This persuaded her to give surgery a try, although with tremendous reluctance. Her success was beyond anything she had expected. I figure God had to be on our side, because my mother-in-law is truly a harridan and complains at the drop of a hat. Please, what can you tell me about NuVasive? I'm thinking of buying 300 shares of the stock, and my mother-in-law would probably buy 1,000 shares. -- JR, Rochester, Minn.
Dear JR: I know the stock, and I know folks like your mother-in-law. Please don't allow her to stretch her luck. This scold may have enjoyed an unexpectedly good outcome, but if the stock were to drop after her purchase, I suspect that her back problems would come back -- probably worse than before.
NuVasive (NUVA-$47.60) is one of those ubiquitous surgical product firms that saturate the market. Sometimes such firms offer stinky products. Others provide new and practical products. Very few give us exceptionally innovative products. NUVA is one of the latter, having developed several exceptionally impressive materials for bone grafts that have numerous spine surgeons licking their lips. This medical device company focuses on applications for spinal fusion surgery, including the biologics used in the spinal fusion process. NUVA's principal product, MAS posterior lumbar interbody fusion, is a minimally disruptive approach to back surgery that includes a software-driven nerve detection and avoidance system, plus an intraoperative monitoring services and support system. Its spinal surgery products include MaXcess -- which is an integrated split-blade retractor and features an interactive monitoring system -- various biologicals and proprietary implants. NUVA's spine line also produces superior thoracolumbar and cervical spine products that enable a surgeon's access to the spine to perform restorative and fusion procedures with minimal disruption.
NUVA has been in the back business since 1997, with its headquarters in San Diego. Now NUVA's exceptional products and fast growth are taking market share from Zimmer Biomet and Stryker. And NUVA's recently built facility to house its 3-D printing capability is the envy of some of the big boys at Orthofix, Globus Medical and Exactech.
NUVA is growing smarter, stronger and leaner and has improved management focus. Revenues in 2009 were $421 million. They have increased each year since, to $1 billion last year and probably $1.2 billion this year. Net income has burgeoned, too. In 2016, NUVA posted earnings of $1.66 a share. Last year, it posted earnings of $2 a share. And the company expects to earn $2.40 a share this year. Since 2009, free cash flow has increased fivefold, and capital expenditures have tripled. NUVA's products have become very important to surgeons because its products are smart and easy to use and the quality of their effectiveness is superior to its competition. Those are some of the many reasons that the shares are strongly recommended by Thomson Reuters, the big shots at Standard & Poor's, Bank of America Merrill Lynch, Morgan Stanley, UBS and others.
Ned Davis Research, Market Edge and Credit Suisse won't recommend this issue, but besides the fact that the price is temporarily down from $81 last July, I can't explain why. The consensus suggests that the price drop was a response to the unexplained departures of NUVA's COO and its CFO. However, that hasn't discouraged two neurosurgeons whom I know from owning NUVA, nor has it discouraged certain fund groups -- namely, Vanguard, American Funds, Oppenheimer and Voya Financial.
I was disappointed to discover such light ownership by NUVA's board and corporate officers. And only one NUVA associate has purchased a share of NUVA stock since August. That was CEO Gregory Lucier, who bought 7,000 shares.
NUVA doesn't pay a dividend, has a $2.6 billion market cap and has 51 million shares outstanding, and institutional ownership controls most of the stock. I think NUVA shares could trade a good 60 percent higher than today's price within the next dozen months.
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