Dear Mr. Berko:
My wife, who has had a bad back for 12 years, finally had back surgery. The doctor, who is a close friend, used a product made by a company called Globus Medical that he discovered several years ago. I won’t bore you with the details, but in a nutshell, he says that the Globus implants are “engineered smarter” than the implants used in the past. He owns the stock and said it’s a small company that he thinks will grow more quickly than its competition. I would like to buy 1,000 shares, and I can afford the risk, which is a question I know you would ask. So what can you tell me about Globus, and would you recommend it?
— RK, Moline, Ill.
Dear RK:
The engineers with nerd degrees at Globus Medical (GMED-$19.90) design, manufacture and sell implants for cervical, thoracic, lumbar and sacral spinal disorders. And GMED’s engineers sold $451 million worth of these little thingamajigs and related disposables to hospitals in the U.S. and overseas. The GMED geniuses have engineered 118 impressive and unique products for a broad array of spinal pathologies, anatomies and surgical approaches. I had six of their extra-huge titanium screws plus two of their lateral fusion devices secured flawlessly to my lumbar spine. And after nine years, they’re working fine as wine and a frog’s hair. Globus’ engineers have developed new biomaterials, interventional pain management solutions and treatments for vertebral compression. The GMED men have also designed new motion preservation technologies, total disk replacements, interspinous spacer products, artificial disks and a facet replacement system for treatment of spinal stenosis. This “Star Trek” technology, inconceivable 20 years ago, is now becoming as common as cotton, and GMED engineers are acknowledged leaders in the race to give Americans (especially congressmen) stronger spines.
And I’d be a buyer of this stock, which, compared with the average of its competition (Stryker, Medtronic, St. Jude Medical, Zimmer Holdings), has significantly higher return on assets (14.9 percent versus 5.8 percent), a superior return on equity (17.5 percent versus 10.7 percent), twice the operating margins (27.8 percent versus 14.5 percent), better three-year average revenue growth (14.7 percent versus 1.9 percent) and superb net profit margins (18.5 percent versus 10.6 percent), and it trades at 21 times earnings, versus 32 times earnings, and has zero debt.
I know it’s not so easy to get excited about a company that makes parts for backs and won’t pass out free samples or advertise its products on Super Bowl commercials or in Playboy or exhibit them on TV’s innumerous medical examiner programs. However, GMED could get some mileage signing a few athletes (Tiger Woods, Fred Couples, Don Mattingly and Larry Bird) to promote its products. Biomet, recently merged into Zimmer (ZMH-$103), hired Olympic gymnast Mary Lou Retton to endorse its Oxford partial knee, and Merck considered hiring George Clooney and Sean Connery to promote Viagra.
This year, GMED expects revenues of $464 million and earnings of 91 cents a share as it peddles thousands of those small implants, most of which are no bigger or heavier than a key fob. The consensus of a dozen analysts projects 2015 revenues to be $505 million and earnings to be $1.02 on GMED’s 95 million shares. And two back surgeons I know, each of whom used a GMED prosthesis for the first time this summer, are enthusiastic about the company’s products and research. One of these young men volunteered that he was so impressed that he bought the stock. Now, it’s been my experience that whenever a doc buys a stock, it usually heads south. These guys are notoriously bad investors. However, after talking about this with a couple of doctors, I’m impressed enough to recommend the stock.
And it seems Wellington Fund, Oppenheimer, BlackRock, Vanguard and Invesco are also impressed. These funds own multimillion-share blocks, and most of their gurus think GMED could trade between $25 and $28 next year. Please note that David Davidar, a co-founder of the company, owns 794,000 shares. However, GMED is small beer in this game of back parts, and I would not be a surprised if one of its bigger brethren found GMED’s technology attractive enough to add it to its portfolio.
—————
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
©2014 CREATORS.COM
