CONMED (CNMD)

Medical tech company CONMED (NYSE:CNMD) reported Q1 CY2025 results exceeding the market’s revenue expectations, with sales up 2.9% year on year to $321.3 million. The company expects the full year’s revenue to be around $1.36 billion, close to analysts’ estimates. Its non-GAAP profit of $0.95 per share was 17.1% above analysts’ consensus estimates.

Company Overview

With over five decades of experience in surgical innovation since its founding in 1970, CONMED (NYSE:CNMD) develops and manufactures medical devices and equipment for surgical procedures, specializing in orthopedic and general surgery products.

The surgical equipment and consumables industry provides tools, devices, and disposable products essential for surgeries and medical procedures. These companies therefore benefit from relatively consistent demand, driven by the ongoing need for medical interventions, recurring revenue from consumables, and long-term contracts with hospitals and healthcare providers. However, the high costs of R&D and regulatory compliance, coupled with intense competition and pricing pressures from cost-conscious customers, can constrain profitability. Over the next few years, tailwinds include aging populations, which tend to need surgical interventions at higher rates. The increasing integration of AI and robotics into surgical procedures could also create opportunities for differentiation and innovation. However, the industry faces headwinds including potential supply chain vulnerabilities, evolving regulatory requirements, and more widespread efforts to make healthcare less costly.

CONMED's competitors in the orthopedic space include Smith & Nephew, Arthrex, Stryker Corporation, Johnson & Johnson's DePuy Mitek, and Zimmer Biomet. In general surgery products, the company competes with Medtronic, Johnson & Johnson's Ethicon Endo-Surgery, Stryker Endoscopy, Olympus, and Boston Scientific.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With just $1.32 billion in revenue over the past 12 months, CONMED is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, CONMED’s sales grew at a mediocre 6.7% compounded annual growth rate over the last five years. This fell short of our benchmark for the healthcare sector and is a poor baseline for our analysis.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. CONMED’s annualized revenue growth of 9.4% over the last two years is above its five-year trend, suggesting some bright spots.

We can better understand the company’s sales dynamics by analyzing its constant currency revenue, which excludes currency movements that are outside their control and not indicative of demand. Over the last two years, its constant currency sales averaged 10.6% year-on-year growth. Because this number aligns with its normal revenue growth, we can see that CONMED has properly hedged its foreign currency exposure.

This quarter, CONMED reported modest year-on-year revenue growth of 2.9% but beat Wall Street’s estimates by 2.6%.

Looking ahead, sell-side analysts expect revenue to grow 4.2% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and suggests its products and services will see some demand headwinds.

CONMED was profitable over the last five years but held back by its large cost base. Its average operating margin of 9.9% was weak for a healthcare business.

On the plus side, CONMED’s operating margin rose by 7.8 percentage points over the last five years, as its sales growth gave it operating leverage. The company’s two-year trajectory shows its performance was mostly driven by its recent improvements.

In Q1, CONMED generated an operating profit margin of 5%, down 6.2 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

CONMED’s EPS grew at a remarkable 10.8% compounded annual growth rate over the last five years, higher than its 6.7% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into CONMED’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, CONMED’s operating margin declined this quarter but expanded by 7.8 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q1, CONMED reported EPS at $0.95, up from $0.79 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects CONMED’s full-year EPS of $4.32 to grow 3.6%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

CONMED has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 8% over the last five years, slightly better than the broader healthcare sector.

Taking a step back, we can see that CONMED’s margin expanded by 4.9 percentage points during that time. This is encouraging because it gives the company more optionality.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

CONMED historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 4.4%, lower than the typical cost of capital (how much it costs to raise money) for healthcare companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, CONMED’s ROIC has stayed the same over the last few years. If the company wants to become an investable business, it must improve its returns by generating more profitable growth.

CONMED reported $0 of cash and $0 of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $270.6 million of EBITDA over the last 12 months, we view CONMED’s 0.0× net-debt-to-EBITDA ratio as safe. We also see its $19.42 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing CONMED beat analysts’ full-year EPS guidance expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. Zooming out, we think this was a solid quarter. The stock traded up 5.3% to $51.64 immediately after reporting.

Updated: June 14, 2025 at 11:57 PM EDT

Before making an investment decision, investors should account for CONMED’s business fundamentals and valuation in addition to what happened in the latest quarter.

CONMED isn’t a terrible business, but it doesn’t pass our quality test. First off, its revenue growth was mediocre over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its rising cash profitability gives it more optionality, the downside is its subscale operations give it fewer distribution channels than its larger rivals. On top of that, its mediocre ROIC lags the market and is a headwind for its stock price.

CONMED’s P/E ratio based on the next 12 months is 12x. Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $66.60 on the company (compared to the current share price of $53.55).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.