Recon And Enabling Technologies Will Drive Significant Long Term Upside Potential

Catalysts

About Enovis

Enovis is a global medical technology company focused on orthopedic implants, bracing, rehabilitation, and enabling technologies that support patients across the orthopedic continuum of care.

What are the underlying business or industry changes driving this perspective?

• The multiyear innovation cadence in Recon, led by extremities growth, ARG shoulder adoption, and new hip and knee platforms such as Nebula Stem and Orthodrive, positions Enovis to keep gaining share in structurally growing joint replacement markets, supporting sustained high single digit revenue growth and expanding gross margin.
• The upcoming broader launch of Arvis Ultra, with lighter, faster, and more capable navigation for shoulders and knees and flexible commercial models, is set to accelerate adoption of enabling technologies and drive higher implant utilization, lifting both revenue and earnings as the ecosystem scales.
• International Recon growth of 12 percent, powered by successful integration of Lima and targeted cross selling across anatomies, underscores the company’s leverage to rising global procedure volumes and premium portfolios, which should support above company average revenue growth and mix driven margin expansion.
• Portfolio shaping actions such as the divestiture of Dr. Comfort, combined with SKU rationalization and EGX driven productivity programs, are concentrating resources in higher growth, higher margin categories, which is likely to improve net margins, free cash flow, and return on invested capital over time.
• Strengthening free cash flow, declining leverage into the low threes, and expected step downs in integration and EU MDR costs by 2026 create growing balance sheet flexibility for debt paydown and targeted investment in innovation, supporting higher future earnings and de risking the equity story.

Assumptions

This narrative explores a more optimistic perspective on Enovis compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Enovis's revenue will grow by 6.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -61.2% today to 14.3% in 3 years time.
• The bullish analysts expect earnings to reach $385.9 million (and earnings per share of $6.39) by about December 2028, up from $-1.4 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $-175.5 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 11.5x on those 2028 earnings, up from -1.2x today. This future PE is lower than the current PE for the US Medical Equipment industry at 29.7x.
• The bullish analysts expect the number of shares outstanding to grow by 0.4% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.81%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Orthopedic procedure volumes, especially in U.S. Hips and Knees and revisions, could slow due to entitlement cuts, government policy changes and macroeconomic pressures on hospital and ASC budgets. This could limit the long-term volume growth that underpins high single digit Recon expansion and put pressure on revenue and earnings growth.
• Rising and potentially persistent tariff and inflationary pressures in Prevention and Recovery, only partially offset by pricing and productivity actions, could erode the benefit from current mix and EGX initiatives and cap adjusted EBITDA margin expansion. This may constrain future net margins and earnings.
• Execution risk around key innovation programs such as Arvis Ultra, Nebula Stem and Orthodrive, including further launch delays, slower surgeon adoption or unfavorable reimbursement and pricing dynamics, could reduce the expected mix upgrade and limit Enovis ability to grow above market. This could weigh on revenue growth and gross margins.
• Portfolio reshaping actions like the Dr. Comfort divestiture and potential future exits or SKU rationalization may streamline focus but also shrink the revenue base and introduce near-term dis synergies. If remaining categories do not accelerate as planned, overall company revenue growth and operating leverage could fall short of expectations, pressuring margins and free cash flow.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Enovis is $58.0, which represents up to two standard deviations above the consensus price target of $48.11. This valuation is based on what can be assumed as the expectations of Enovis's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $58.0, and the most bearish reporting a price target of just $33.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $2.7 billion, earnings will come to $385.9 million, and it would be trading on a PE ratio of 11.5x, assuming you use a discount rate of 9.8%.
  
• Given the current share price of $27.67, the analyst price target of $58.0 is 52.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.