Needham: Wright Medical Group A Buy After Latest Acquisition

Wright Medical Group NV WMGI's acquisition of Cartiva, a private orthopedic medical device company, resulted in a pullback in the stock that investors should take advantage of, according to Needham.

The Analyst

Needham's Mike Matson upgraded Wright Medical Group from Hold to Buy with a new $30 price target.

The Thesis

Wright Medical Group's acquisition of Cartiva is expensive based on the price tag, which implies a valuation of 9.3 times 2019 estimated EV/sales, Matson said in the upgrade note. (See the analyst's track record here.) 

At the same time, Cartiva's expected revenue growth of 50 percent in 2018 and 34 percent next year is above the group average, the analyst said. 

Cartiva gives Wright Medical Group immediate and direct exposure to the estimated $400-million osteoarthritis of the big toe market as it is the only approved cartilage-like polymer in the U.S., Matson said. While there will be some cannibalization of Wright Medical Group's products, it will come at Cartiva's much higher price point, as its products has an average selling price of $3,500 with a gross margin rate above 90 percent, he said. 

Wright Medical Group's guidance that Cartiva will contribute $47 million in revenue next year appears to be conservative, especially in the international market, which is a "mostly greenfield opportunity," the analyst said. 

Price Action

Wright Medical Group shares were rising 5.56 percent to $28.28 at the time of publication Tuesday. 

Related Links:

Wright Medical Is Headed For Double-Digit Growth, Stifel Says In Bullish Initiation

Jefferies Says Wright Medical A Top Pick, Management Meetings 'Heartening'