Can Globus Medical's IPO Compete With Already Public Rivals?

| About: Globus Medical (GMED)
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Globus Medical (NYSE:GMED) is set to go public this week on the New York Stock Exchange. The company calls itself the "world's largest private spine company". The company has key competitors and will definitely not be the biggest spine company on the public exchanges when they do complete their IPO. Globus Medical is a medical device maker for spine disorders. The company competes with large rivals Stryker (NYSE:SYK), Zimmer Holdings (ZMH), Medtronic (NYSE:MDT), and DePuy (NYSE:JNJ). Smaller rivals include Nuvasive, Alphatec Spine, and Orthofix International.

Globus Medical is set to sell 11.76 million shares of its stock, of which 2.94 million is coming from the company and an additional 8.82 million is from existing shareholders. The company is set to price its shares in a range of $16-$18. The publicly traded company will be made up of Class A and Class B shares. After the IPO, Chief Executive Officer David Paul will have 81% of the voting power. There is expected to be 91.25 million shares outstanding after the IPO.

The company has medical devices in the spine disorders market. The company has products that use either innovative fusion, or disruptive technologies. With 74 trademarks, and 41 pending, the company has been busy creating new products and brands since its launch in 2003. Over 100 products have been created and sold by Globus Medical. For the fiscal year ending 12/31/11, products in the innovative fusion market made up $61.5 million in sales, while disruptive technology devices made up $33.2 million of sales.

Six categories of products are listed from Globus Medical:

· Minimally Invasive

· Motion Presentations

· Cervical

· Intervertebral Fusion

· Thoracolumbar

· Biomaterials

Strengths listed by Globus Medical in their Retail Roadshow presentation:

· Comprehensive and broad portfolio of innovative fusion products

· Well positioned and disruptive technology products

· Integrated product development engine

· Exclusive U.S. sales force with broad geographic scope

· Demonstrated track record of profitability with established scale

Several key product launches now account for a large portion of Globus Medical sales. COALITION, which saw a April 2009 launch, accounted for 11% of the most recent fiscal year's sales. CALIBER, which began sales in 2011, made up 10% of sales at the end of the most recent quarter. The company's lead product, REVERE 5.5 Titanium, made up 21% of fiscal 2011's sales.

Sales in fiscal 2011 totaled $331.5 million. Here is a look at some financial numbers over the last three years:

2009 2010 2011
Sales $254.3 million $288.2 million $331.5 million
Net Income $48.7 million $54.5 million $60.8 million
Earnings Per Share $0.56 $0.61 $0.69

In the most recent three months (ending 06/30/12), Globus Medical saw sales of $96.0 million, an 18% increase from the previous year's period. Gross profit of $77.6 million was a 21% increase. Operating income of $30.6 million was a 27% increase. The company reported net income up 18% to $19.0 million. At the end of the quarter, the company had $165.0 million in cash.

Proceeds from the IPO are expected to total $35.1 million. The company plans on using the money for working capital with no specific goals. Long term goals include: increasing the U.S. sales force, and growing in international markets.

The spine market is highly competitive and already has a lot of publicly traded competition for Globus Medical. According to iData Research, the spine market is a $10 billion industry. Of the $10 billion, $5.9 billion is accredited to innovative fusion. This large market opportunity bodes well for a small player like Globus Medical down the road. I see the company struggling for several years as it competes with larger rivals. The company plans to release 5-10 new products in the next three years. Keep an eye on the stock if it drops after the IPO and pay attention to key product releases. I recommend staying away from the IPO at $16.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.