NEW YORK (AP) -- NuVasive Inc. shares traded higher Wednesday after a Canaccord Genuity analyst raised his price target on the spinal device maker's stock, saying he expects NuVasive to report stronger profit margins starting in 2015.
THE SPARK: Analyst William Plovanic rates NuVasive shares "Buy" and raised his target to $29 per share from $24.50. He said NuVasive's revenue is still growing and he thinks the company will be able to improve its profit margins after it stops making major royalty payments to competitor Medtronic Inc. It could also use the expansion of its Japanese business and the recent purchase of one of its suppliers to improve those margins.
THE BIG PICTURE: NuVasive is based in San Diego and it makes devices used in minimally invasive spinal surgeries. It expects to report $655 million in revenue this year, up from $620.3 million in 2012. According to FactSet, analysts are forecasting $657.1 million in revenue on average.
In 2011, a federal jury ordered NuVasive to pay about $101 million in damages for infringing on three patents belonging to Medtronic. Plovanic said the payments cost the company about $14.5 million a year and have a significant effect on NuVasive's profit margins, but they will shrink after February 2015.
The company is expanding its business in Japan. In April, NuVasive said it opened a Tokyo office and has demonstrated its surgical procedures in key cities and markets. In May, the company acquired ANC LLC, one of the key suppliers of its spinal implants, for $4.5 million. NuVasive said it wants to handle more of its own manufacturing so it can improve its profitability.
SHARE ACTION: Shares of NuVasive rose 51 cents, or 2.3 percent, to close at $22.85 after hitting $23.32 earlier in the day. The shares closed at $22.62 Oct. 3 and plunged 33 percent the next day after NuVasive gave a disappointing third-quarter forecast. The stock is now almost back to those levels.