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NuVasive Earnings Get A ‘D’: Disappointing, Deceptive And Discouraging

|Includes: NuVasive, Inc. (NUVA)

After a brutal three-month stretch of turmoil that saw its stock price plummet 40%, NuVasive had an opportunity Tuesday to soothe some nerves during its earnings call.

But the San Diego medical device company failed to deliver.

The maker of devices used in spinal surgery delivered better-than-expected bottom-line growth, but sluggish sales numbers were a significant reason for concern.

The company also announced a $100 million share repurchase, which is leading to a temporary upswing in its share price. Don’t be fooled by this.

Stock repurchases are often a sign of desperation. When sales are too sluggish to raise a company’s stock price, some executives create demand by buying their own shares. To me, that’s nothing more than deception.

And it does nothing to reduce the concern in my Oct. 19 report: NuVasive Too Many Red Flags, Distractions and Question Marks.

As I reported, three top executives left the company in recent months, a blistering report by Glasshouse Research accused NUVA of accounting irregularities and compared its business model to Valeant (the toxic Canadian pharma company), and numerous analysts downgraded NUVA and slashed their price targets and earnings guidance.

On top of that, the company recently filed a lawsuit against former Vice Chairman Patrick Miles, litigation that will devour the time and attention of its management team – a distraction that company does not need.

Another distraction is NUVA’s reported efforts to secretly support an initiative that would curtail real estate development in neighboring Orange County. Karen Jaffe, NUVA’s senior director of regulatory and clinical affairs, is co-author of the initiative, according to The Orange County Register.

The Orange County Register questioned whether Nuvasive was trying to stifle competition in Orange County. Rather than concerning itself with real estate development initiatives and spiteful litigation against former employees, the company should be laser-focused on turning around its stagnant sales.   

Bu focus is something that is eluding CEO Greg Lucier and his inexperienced, distracted management team. At this time, NuVasive is simply too toxic to touch.

The company’s troubles intensified on Sept. 19, when Glasshouse Research issued a report under the headline, “NuVasive C-Suite Jumps Ship as NUVA Bares Similar Accounting Concerns to EFI.”

Glasshouse said “we believe that the core business is suffering greatly at NUVA and is being masked by recent acquisitions.” The report also suggested that NUVA inappropriately categorized certain expenses as one-time in order to make a bleak financial picture appear much rosier.

That’s why the stock repurchase appears to be nothing more than another deceptive act intended to artificially inflate the stock price of a company that has lost focus, and market share. Perhaps it’s time for leadership change. The current strategy of inflating revenue through acquisitions, earnings through one-time expenses and stock price through buybacks is nothing more than smoke and mirrors.

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