Despite A Setback From Its OUS Distributors, K2M Continues To Leverage Innovation To Grow

K2M (NASDAQ:KTWO) is up about about 15% from when I last wrote about the company, but it hasn't been a smooth path. The shares were hammered in early May when the company lowered guidance due to business setbacks with two distributors that make up more than half of its international sales. Despite this blow, K2M has shown in the meantime that its innovative portfolio of products for complex/deformity, minimally invasive, and degenerative spine surgery can drive worthwhile growth in the U.S. market.

I continue to believe that K2M can and will grab share from Medtronic (NYSE:MDT) and Johnson & Johnson (NYSE:JNJ) in the complex/deformity market segment on the basis of innovation, and that the company will have success in pulling through into the minimally invasive and degenerative markets. I'm looking for low double-digit revenue growth over the next decade and for FCF margins to ultimately reach the low-to-mid teens. Factoring in the near-term setback to revenue growth (and its impact on margins and cash flow) and dilution from a recent convertible bond offering, my fair value drops to around $20, making K2M an okay idea for new money and at least deserving of a spot on the watchlists of investors interested in growth med-tech.

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Despite A Setback From Its OUS Distributors, K2M Continues To Leverage Innovation To Grow