Buy The Dip In NuVasive Shares, Says Canaccord Genuity

The stock was seen trading down 4.39 percent at $73.56 in reaction to the results.

Q1 Review

Analyst Kyle Rose noted first-quarter revenues rose 16 percent year-over-year, with ex-U.S. outperformance helping offset the weaker-than-expected U.S. results. The analyst clarified that the results in the United States were hurt by soft procedure volumes in January and February.

In the ex-U.S. segment, the analyst noted that the company benefited from the reintroduction of XLIF into the Japanese market and a return to growth in Brazil.

"We note leading indicators of forward growth — new product flow (Less-ray, cervical iGA, Unite, pediatric deformity, expandable cages) and sales rep additions (+15 percent Y/Y in 2016) — should drive incremental growth opportunities entering the H2/16," the analyst said.

On Track to Deliver Meaningful Leverage

Canaccord Genuity believes the company is on track to deliver meaningful leverage over the next five years, although it expects M&A and continued investments to offset near-term improvements in operating margins.

"In sum, we continue to view the margin story positively but expect 2017 to be back-end loaded as NUVA realizes the benefits of sales force investments (building out peds team) and marketing efforts in Japan," the firm said.

Guidance Reflects Changing Seasonality

The firm noted that the company guided full-year revenues to $1.065 million, including a $10 million forex headwind, adjusted operating margins of 17.1 percent, up 100 basis points year-over-year, and earnings of $2 per share. However, the second quarter revenue guidance of $262 million was about $5 million below the consensus estimate, the firm added.

According to the firm, this reflects the changing seasonality of the revenue cadence post the Ellipse Biotronic acquisitions.

Concluding, the firm said, "We continue to believe that NuVasive is in prime share-taking position in the global spine market, driven by innovative new product flow, robust sales force additions, and broader tailwinds such as vendor consolidation.

"Furthermore, the margin expansion story remains intact and we see upside bias to estimates despite the second-half weighted guidance."

Canaccord Genuity maintains its Buy rating on NuVasive, while raising its price target to $84 from $82.

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