NuVasive: Zacks’ Bull of the Day Play

NuVasive (NUVAAnalyst Report) is medical device company that is working on devices and procedures that will help the spine. The company has launched 10-12 new launches and extensions each year, so when it comes to back surgery, these are the guys you want. Analysts have recently increased their earnings estimates and that has helped push the stock to a Zacks Rank #1 (Strong Buy) and today it is the Bull of the Day.Personal Anecdote

A few years back, my sister was in a bad spot with her back, and we talked with a doctor for an hour or so who said that modern medicine really has no idea how the back works. That was a few years ago, and I think there has been some progress. Just looking at the chart, you can tell that investors and customers alike have really found something good with NUVA.

Description

NuVasive is a medical device company, develops and markets minimally-disruptive surgical products and procedurally-integrated solutions for the spine. The company sells its products through independent sales agencies, directly-employed sales share-owners to surgeons and hospitals in the United States and internationally. NuVasive was founded in 1997 and is headquartered in San Diego, California.

Earnings History

The company beat the Zacks Consensus Estimate in six of last eight quarters.

In the most recently reported quarter, which hit the wire back on July 28, the company posted EPS of $0.31 when the Zacks Consensus was looking for $0.24. This was the third consecutive beat for NUVA and the company was also able to extend is streak of positive revenue surprises to 15, and that is impressive.

To get a better sense of the recent revenue beats, I went ahead and made a chart. This underscores management’s ability to guide Wall Street, and this one of the primary roles that they have. That said, it is somewhat rare to see such excellent discipline and control of the analysts.

Earnings Estimates

Estimates have been on a slow grind higher all year. Starting at $1.04 in January the number lifted to $1.10 in February following an earnings report. A move of only 1 cent hit in May was followed by the earnings in July which help pushed estimates up to $1.18. There has been no movement to estimates in August.

The 2016 numbers have a little more up and down movement, but have seen a move from $1.26 at the start of the year to $1.43 at the current level means there is a good trend in place. $1.43 is also the highest the 2016 Zacks Consensus Estimate has been. As that number moves higher, it is likely that money managers will allow for a greater multiple and that means a price increase.

Valuation

In terms of PE, the valuation is stiff… but the other metrics tell me this is not that bad of a spot. The forward PE of 44x is just short of double the 25x industry average, so that is hard to swallow. There is a discount is found in price to book, but it is a small one. The 3.8x book multiple is below the 4.0x industry average. The price to sales multiple of 3x is sporting a solid premium when compared to the 1.7x industry average.

The growth rates for revenue are pretty much in line with the industry, but we see 58% earnings growth this year and then 21% earnings growth next year. Both of those metrics for earnings blow away the industry averages.

Chart

Zacks has developed a chart that helps investors see how earnings estimates have impacted the price of the stock over the last several years. We call this chart the price and consensus chart, and each color coded lines represents analyst estimates over a designated year. As estimates increase, the stock tends to follow. The Zacks Rank is impacted by earnings estimate increases, beats and incorporates the idea of analyst agreement and magnitude. As a Zacks Rank #1 (Strong Buy) we see that estimates are moving higher.

Follow Brian Bolan on twitter at @BBolan1

Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.

He also run the new Stocks Under $10 Investor service where he looks for low priced stocks that are seeing positive earnings estimate revisions. This popular service has seen some strong early returns and offers a free trial via the Zacks Investor Collection program that includes Home Run Investor, Value Investor and Income Plus.

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