Teleflex Earnings: Surgical and Interventional Products Drive Consistent Top-Line Growth

No-moat Teleflex’s TFX third-quarter results came mostly in line with our expectations. We are maintaining our $211 fair value estimate, and the shares appear about fairly valued. Management raised its full-year revenue growth guidance to 6.4%-6.6% from 5.5%-6.3% in constant currency, mainly driven by the robust performance of surgical and interventional products. We are encouraged to see Teleflex’s top-line growth reverting to the midsingle digits after years of disruption, laying the foundation to reestablish a consistent growth profile.

Teleflex recorded net revenue of $764 million in the third quarter, a year-over-year increase of 7.4% in constant currency, outpacing the 5.9% growth last quarter. Interventional and surgical products had the strongest growth at 22% and 21%, respectively, in constant currency. Teleflex’s intra-aortic balloon pump business has been the beneficiary of Johnson & Johnson’s challenges with its own Impella product recall. The circumstances have only worsened for J&J, thanks to a recent warning letter from the Food and Drug Administration outlining fairly serious concerns. We expect it could take some time for J&J to fully resolve these issues, in which case Teleflex should see its interventional strength continue into 2024.

In contrast, UroLift was still troubled by lagging demand from physicians’ offices. We see the Palette Life Sciences acquisition reinforcing the economic moat for Teleflex’s interventional urology business, but we’re skeptical about an immediate turnaround following the transaction. Strategically, we view the addition of Palette’s portfolio and UroLift’s expansion in Asia as capable of supporting the segment’s long-term growth. On a more positive note, given that sales personnel at Palette are familiar with UroLift, we think cross-selling is an attractive opportunity. Importantly, we think this could be a large opportunity, considering that only 20% of urologists currently using UroLift also use Palette’s Barrigel.