Med-tech stock Conmed dips ahead of big Q4 report...opportunity?

Key Points

• CONMED shares dove 10% last week, retreating below the $100.00 level in an apparent bout of profit taking on one of the market’s hottest groups.
• The company is expected to have generated approximately $332 million in fourth quarter sales with EPS forecast to jump 164% year-over-year to $1.11.
• Even if the "Ozempic effect" is large, it will likely have an insignificant impact on CONMED’s overall financial results since the company provides products for many procedures other than bariatric surgery.

When Utica, NY-based medical technology company CONMED Corporation NYSE: CNMD reports fourth quarter financials after the close on Wednesday, it is expected to post some of its best growth in years.

You wouldn’t know it by the stock’s recent performance.

CONMED shares dove 10% last week despite an absence of a major company or industry news. In a rare down week for rallying U.S. stocks, the mid-cap retreated below the $100.00 level in an apparent bout of profit-taking on one of the market’s hottest groups. Thanks to strong Q3 earnings reports, favorable regulatory rulings, and risk-on trader sentiment, the Dow Jones U.S. Medical Devices Index surged nearly 30% from November 1, 2023, to January 22, 2024.

Last week’s breather in CNMD was also prompted by a Hold rating issued by Wells Fargo that some shareholders seem to have interpreted as a Sell signal. The analyst cited competitive pressures and growth uncertainty, the latter of which was surprising given Wall Street’s 32% Q4 revenue growth projection.

The provider of devices and equipment for surgical procedures is expected to have generated approximately $332 million in fourth-quarter sales. Earnings per share (EPS) are forecast to jump 164% year-over-year to $1.11. Although CONMED’s growth is slated to cool from there, the Street’s 26% 2024 EPS growth forecast is nothing to sneeze at.

With CNMD trading below a ‘bearish’ Wells Fargo’s $107.00 price target — and well below the $118.50 consensus target — swing traders could have a bullish opportunity on their hands. CONMED comfortably beat EPS expectations for Q1, Q2 and Q3 of 2023. Earlier this month, Piper Sandler gave the stock a Buy rating and $130.00 target.

Currently in the mid-$90s, CNMD itself is in need of some restorative surgery. This week’s earnings release could be the first step.

Will GLP-1 drugs hurt CONMED’s growth?

CONMED sells a range of products used by surgeons and healthcare professionals across several surgical disciplines. Bariatric surgery for the treatment of obesity is among its specialties. As such, the stock has been sensitive to headlines around Ozempic and other GLP-1 weight loss drugs, which some have feared will reduce the need for bariatric procedures. In reality, much is still not known about the potential side effects and use of these drugs. 

Moreover, equipment and supplies for bariatric surgery are a small part of CONMED’s business. The company provides products for many other procedures — colorectal surgery, general surgery, gynecologic surgery, pediatric surgery, thoracic surgery, urologic surgery, gastroenterology, dermatology, orthopedics, podiatry and pulmonology. Even if the Ozempic effect is large, it will likely have an insignificant impact on CONMED’s overall financial results.

The company’s third-quarter outperformance — highlighted by 17% adjusted EPS growth — was driven by healthy end-market demand. Core products In2Bones and Biorez were key contributors. This gave management the confidence to raise both its full year 2023 sales and EPS guidance. 

CNMD was trading in the low $90’s back then, which means the market has taken back all of the credit it gave for the upbeat outlook. If management can repeat the positive view for 2024, a run back above $100 could happen fast.  

Is CNMD stock oversold?

From a technical analysis perspective, CONMED shares have crept into oversold territory according to multiple metrics. The relative strength indicator (RSI) is at 22. Any number below 30 points to potential oversold conditions. When CNMD slipped below the 30 RSI level in September 2023, it went on to rally to a six-month high. 

The story is similar when we look at the daily chart Bollinger Bands. CNMD is trading outside of the lower band, which solidifies the case for it being oversold. In fact, we have to go back to May 2022 to find the last time the stock traded this far outside of its normal volatility range.

In terms of long-term support, CNMD has managed to bounce off the $91.09 level on multiple occasions since October 2023. Assuming it can continue to find buying support here, the downside from current prices is limited to about $3.00. Compare this to the upside potential associated with a Q4 earnings beat and bullish Street price targets, and the upside/downside ratio looks favorable.