Should You Pick Teleflex Stock After 20% Gains This Month?

Teleflex stock (NYSE: TFX), which provides instruments and consumables for laboratories, trades at $220 per share, 50% below the level seen in March 2021. TFX stock was trading at around $246 in early June 2022, just before the Fed started increasing rates, and is now 10% below that level, compared to 20% gains for the S&P 500 during this period.

Looking at a slightly longer term, TFX stock has suffered a sharp decline of 45% from levels of $410 in early January 2021 to around $220 now, vs. an increase of about 20% for the S&P 500 over this roughly 3-year period. Notably, TFX stock has underperformed the broader market in each of the last 3 years. Returns for the stock were -20% in 2021, -24% in 2022, and -11% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 19% in 2023 – indicating that TFX underperformed the S&P in 2021, 2022, and 2023.

In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Health Care sector including LLY, UNH, and JNJ, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could TFX face a similar situation as it did in 2021, 2022, and 2023 and underperform the S&P over the next 12 months – or will it see a recovery? Returning to the pre-inflation shock high of over $440 (seen in April 2021) means that TFX stock will have to gain over 2x from here, and we don’t think that will materialize anytime soon. That said, TFX stock currently trades at 3.6x revenues, below its last five-year average of 6.1x, and appears to have room for growth. Our Teleflex Valuation Ratios Comparison dashboard has more details.

Our detailed analysis of Teleflex’s upside post-inflation shock captures trends in the company’s stock during the turbulent market conditions seen over 2022. It compares these trends to the stock’s performance during the 2008 recession.

2022 Inflation Shock

Timeline of Inflation Shock So Far:

• 2020 – early 2021: Increase in money supply to cushion the impact of lockdowns led to high demand for goods; producers unable to match up.
• Early 2021: Shipping snarls and worker shortages from the coronavirus pandemic continue to hurt supply.
• April 2021: Inflation rates cross 4% and increase rapidly.
• Early 2022: Energy and food prices spike due to the Russian invasion of Ukraine. Fed begins its rate hike process.
• June 2022: Inflation levels peak at 9% – the highest level in 40 years. The S&P 500 index declined more than 20% from peak levels.
• July – September 2022: Fed hikes interest rates aggressively – resulting in an initial recovery in the S&P 500 followed by another sharp decline.
• October 2022 – July 2023: Fed continues rate hike process; improving market sentiments helps S&P500 recoup some of its losses.
• Since August 2023: Fed has kept interest rates unchanged to quell fears of a recession, although another rate hike remains in the cards.

In contrast, here’s how TFX stock and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

• 10/1/2007: Approximate pre-crisis peak in S&P 500 index
• 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
• 3/1/2009: Approximate bottoming out of S&P 500 index
• 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

Teleflex

TFX
and S&P 500 Performance During 2007-08 Crisis

Teleflex’s stock declined from $64 in September 2007 (pre-crisis peak) to $47 in March 2009 (as the markets bottomed out), implying it lost 25% of its pre-crisis value. It recovered after the 2008 crisis to levels of around $54 in early 2010, rising 15% between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied 48% between March 2009 and January 2010 to reach levels of 1,124.

Teleflex’s Fundamentals Over Recent Years

Teleflex’s revenue grew to $2.8 billion in 2022 versus $2.6 billion in 2019 amid price increases and higher demand for interventional products, original equipment, and developmental services. The Z-Medica and Standard Bariatrics acquisitions have bolstered the overall top-line growth in recent years. The company’s growth was disrupted in recent years due to the 2021 recall of one of its dialysis interventions device and last year’s recall of Iso-Gard Filter S filters in the U.S.

The company’s earnings stood at $7.74 on a per-share and reported basis in 2022, compared to the $9.91 figure in 2019. The company narrowed its 2023 sales outlook to now rise between 6.25% and 6.45% and adjusted earnings to be in the range of $13.30 and $13.50, compared to its previous guidance of 5.80% to 6.55% sales growth and $13.00 to $13.60 in earnings.

Does Teleflex Have A Sufficient Cash Cushion To Meet Its Obligations Through The Ongoing Inflation Shock?

Teleflex’s total debt increased from $1.9 billion in 2019 to $2.0 billion now, while its cash increased from $0.3 billion to $0.8 billion over the same period. The company also garnered $0.4 billion in cash flows from operations in the last twelve months. Given its cash cushion, Teleflex is in a good position to service its near-term obligations.

Conclusion

With the Fed’s efforts to tame runaway inflation rates helping market sentiment, we believe TFX stock has the potential for more gains once fears of a potential recession are allayed. That said, unfavorable macroeconomic factors remains a key risk factor for realizing these gains.

While TFX stock can see higher levels, it is helpful to see how Teleflex’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

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