Teleflex Ends Year on a Stable Note

Teleflex TFX posted solid fourth-quarter performance, ending the year on a stable note. On one hand, currency was a major headwind across all segments this fiscal year, and supply chain and staffing shortages held back specific business units. On the other, we think the firm did well against these short-term obstacles and looks poised for a strong comparison next year. Management provided a revenue guidance midpoint of 5.5% for fiscal 2023, which is not far off from our estimate of 5.9%. We expect that our fair value estimate will rise modestly after rolling our model and we continue to view the firm lacking a moat.

Full-year revenue grew by 3.7% on a constant currency basis, or 4.3% organically when excluding divestitures. Most products across premium and core portfolios posted solid growth as healthcare utilization and procedure volumes improved globally. The main exception was the firm’s largest product, UroLift, which declined by 5%. This was largely attributable to the procedure backlog for benign prostatic hyperplasia. Voluntary procedure volumes such as this are still lagging due to staffing shortages in offices and ambulatory surgical centers. In addition, we’d expect stronger growth next year now that the majority of users have been transitioned to UroLift 2. Adjusted full-year operating margin came in at 27%, a step down from last year’s 28%. The firm faced shortages of raw materials, particularly Tyvek, which affected its large vascular access and interventional segments.

Management confirmed they are actively searching for M&A targets. The firm added the Titan SGS Stapler to its portfolio for use in sleeve gastrectomy procedures to treat morbid obesity. The acquisition doubles the size of the stapler’s salesforce since Teleflex’s reps will be trained on it as well. The firm is well-positioned for further acquisitions, having ended the year with a debt-to-equity ratio of 40%; a decade-low for the firm.