Two Health Favorites: Wound Care to Medical Imaging

04/04/2019 5:00 am EST

Focus: HEALTHCARE

Richard Moroney

Editor, Dow Theory Forecasts

Our favorite new stock ideas include two healthcare firms — one a life sciences play involved in wound care and the other a seller of medical imaging agents, notes Richard Moroney, editor of the small cap focused advisory service, Upside.

Integra LifeSciences (IART) develops and sells devices and implants used for burn and deep tissue wounds, the repair of nerves and tendons, and brain trauma. Product rollouts and an improved sales force are expected to generate faster organic growth in the second half of 2019.

Integra launched nine major products in 2018 and aims for 10 more this year. Contributions from acquisitions should sustain growth. In 2018, the company acquired Codman Neurosurgery from Johnson and Johnson (JNJ), expanding its global footprint. Integra has rallied 22% so far this year, and we see more upside.

Shares trade at 23 times trailing earnings, but the valuation seems reasonable based on growth forecasts. Today, 17 analysts provide profit estimates for 2019, with the consensus calling for per-share earnings of $2.69, up 11%. Even the most pessimistic estimate of $2.65 per share equates to 10% growth. The stock has an Earnings Estimates score of 94. Integra is being initiated as a Buy.

Lantheus (LNTH) boasts solid operating momentum, long-term growth potential, and rising analyst estimates. The company sells medical imaging agents used by cardiologists, nuclear physicians, and radiologists to diagnose cardiovascular and other diseases.

In 2018, its core product DEFINITY had worldwide sales of $183 million, up 16%. With an estimated U.S. market share of 80% and representing nearly 53% of annual revenue, DEFINITY improves the imaging of the left ventricular chamber during echocardiograms.

Lantheus earns an Overall score of 88, paced by a 99 in Earnings Estimates. At 25 times trailing earnings, the stock trades above its three-year average of 17 but below the median of 26 for S&P 1500 health-care-supply stocks.

Lantheus trades at 20 times estimated 2019 earnings — a 34% discount to peers. Per-share earnings are expected to increase 22% this year on 5% higher revenue. Earnings are expected to increase 13% next year, with sales up 7%. The stock is being initiated as a Buy.

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