Surgical Device Maker K2M (KTWO) Boosted on Early Q4 Estimates

K2M Group Holdings Inc (NASDAQ:KTWO) jumped 6.32 percent higher today, rising $1.34 to hit $22.54 at the market close. After the closing bell yesterday, the medical technology company released preliminary financial results for its fourth quarter and full fiscal year – which ended on December 31. K2M’s stock has – so far – remained flat in after-hours trading.

Over one million shares of K2M changed hands today, nearly triple the stock’s average volume of about 360,000 shares per day.

The company says that it anticipates its fourth-quarter revenue will be posted somewhere in the range of $61.3 million to $61.8 million, narrowly beating the consensus estimate by about $2.0 million. If K2M’s projections are correct, its year-over-year revenue growth will be between 13 percent and 14 percent – on a constant currency basis.

Domestic revenue during the fourth quarter will be between $47.4 million and $47.7 million, representing an approximate 21 percent increase from the year-ago period. The company’s fastest-growing division is expected to be US Minimally Invasive Surgery (MIS) products – which grew by 35 percent year-over-year. International revenue for the fourth quarter is projected to be in the range of $13.9 million to $14.1 million, a six to seven percent drop from the same quarter a year earlier.

For the full fiscal year, K2M is forecasting its net revenue will be in the range of $236.1 million to $236.6 million. The estimate is between ten percent and 11 percent higher than the company’s performance in the previous year. As for full-year net loss and adjusted earnings, K2M assured shareholders that the figures will be posted in line with the company’s previously provided guidance.

“Our U.S. growth represents the clearest indication of the continued appreciation from the spine surgeon community for our differentiated product offerings,” said the company’s President and Chief Executive Officer, Eric Major. “Outside the U.S., we navigated challenging distributor disruptions in Australia and Japan early in the year, and look forward to building on the improving results in recent quarters as we return to expected growth in these markets in 2017.”

Mr. Major added that the company’s strategy is unchanged, and the management team is still focused on growing its market share in the spinal surgery space by leading the sector in innovation and spreading its distribution footprint. The executive concluded his remarks by saying his team is confident in its ability to boost revenues in the mid-teens in fiscal 2017 with enhanced profitability.

Following yesterday’s earnings release, K2M’s stock was reiterated by Needham as a “Strong Buy.” Needham analyst Mike Matson also raised the firm’s 12-month price target to $29.00 from $25.00.

Additionally, Oppenheimer’s Steven Lichtman reaffirmed his “Outperform” rating on the company’s common stock – lifting his firm’s price target from $23.00 to $26.00.

“KTWO’s preliminary 2017 commentary was firm, with the company noting confidence in mid-teens revenue growth and improved profitability,” said Lichtman. “We look for 2017 to be led by KTWO’s broad Complex Spine portfolio, 3D-printed titanium implants, increased contribution from ’16 sales hires, continued improvement of international distributor issues and easier comps.”

K2M plans on releasing complete, detailed fourth quarter and fiscal 2016 financial results near the end of February or beginning of March. Details of the time and method of publication, as well as webcast and conference call detail, will be made public via a subsequent press release.

Tim is a contributing analyst for and specializes in equities trading and public offerings. He is a graduate of UCLA and began his career doing capital markets research for a top investment banking software provider.