Reasons to Retain Avanos Medical Stock in Your Portfolio for Now
Avanos Medical, Inc. AVNS is well-poised for growth in the coming quarters, courtesy of its impressive product line. The optimism, led by a decent fourth-quarter fiscal 2025 performance and continued robust product performance, is expected to contribute further. However, tariff risks and foreign exchange volatility persist.
Over the past six months, this Zacks Rank #3 (Hold) stock climbed 13% against a 5.5% decline of the industry. The S&P 500 Composite rallied 1.6% in the same time frame.
The renowned medical device solutions provider has a market capitalization of $632.97 million. AvanosAVNS-- Medical’s earnings yield of 7.9% compares favorably with the industry’s negative yield being 0.9%.
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Factors Favoring AVNS’ Growth
Strong Momentum in Core Segments: Avanos Medical continues to demonstrate solid growth across its strategic segments, led by Specialty Nutrition Systems (SNS) and Pain Management and Recovery (PMR). In fiscal 2025, SNS delivered over 8% organic growth, outperforming the market, with double-digit expansion in short-term enteral feeding and strong demand across long-term and neonatal products. Growth was supported by continued U.S. adoption of CORTRAK, successful uptake of the CORGRIP 2 retention system and benefits from the U.K. go-direct transition. Neonatal solutions also posted above-market growth, reinforcing SNS as a durable and consistent growth engine.
Within PMR, growth was driven by the radiofrequency ablation (RFA) business, which delivered double-digit organic growth. Momentum was supported by higher generator placements, expansion of the installed base and increasing procedure volumes. Strong performance in ESENTEC and TRIDENT, along with international growth supported by favorable reimbursement trends in markets like the U.K. and Japan, further strengthens long-term growth visibility.
Strategic Portfolio Optimization & Accretive M&A: Avanos Medical continues to actively reshape its portfolio to enhance growth and profitability. The company highlighted strong progress with the integration of Nexus Medical, which is performing better than expected and is projected to deliver double-digit growth in fiscal 2026 and beyond. The acquisition strengthens AVNS’ position in the neonatal segment and leverages its existing NICU sales channel, driving incremental revenue opportunities.
The company has taken decisive steps to exit or divest underperforming assets. These include the divestiture of the hyaluronic acid business, the planned exit of the IV therapy segment in first-quarter fiscal 2026 and the restructuring of the GAME READY business by transitioning the U.S. rental model to a partner. These actions are improving focus on higher-growth, higher-margin segments while enhancing overall portfolio quality and capital allocation efficiency.
Tariff Mitigation & Cost Efficiency Driving Margin Expansion: Avanos Medical is executing a comprehensive strategy to mitigate tariff pressures and improve its cost structure. A key initiative is the planned exit from China-based syringe manufacturing by mid-2026, with production shifting to Mexico and Southeast Asia. This transition, along with pricing actions and cost controls, is expected to support gross margin improvement in the second half of fiscal 2026 and into fiscal 2027.
In parallel, the company is driving operational efficiencies through cost containment measures and a more disciplined spending approach. Despite incremental tariff headwinds, management expects earnings growth to outpace revenue growth, reflecting improved operating leverage. A more flexible R&D model, combining internal development with external partnerships, aims to enhance innovation efficiency while maintaining investment levels. Together, these initiatives position Avanos MedicalAVNS-- to expand margins, improve profitability and sustain long-term growth momentum.
Factors That May Offset the Gains for AVNS
Persistent Tariff Headwinds & Margin Pressure: Avanos Medical continues to face tariff-related challenges, which are expected to remain a headwind in fiscal 2026. The company guided to $30 million in tariff-related costs, a $12 million increase from fiscal 2025, with a significant portion tied to neonatal products sourced from China. While management is actively implementing mitigation strategies — including pricing actions, cost controls and supply chain adjustments — these measures will take time to fully offset the impact.
A key initiative is the exit from China-based syringe manufacturing by mid-2026, but until this transition is completed, tariff pressures are expected to weigh on profitability. Management indicated that gross margin improvement will be delayed, with a pause in fiscal 2026 before improvement begins in the second half and into fiscal 2027. This creates near-term earnings pressure despite long-term structural benefits.
Slower Growth in Certain Segments & Product Headwinds: While overall growth remains positive, some areas of the business are experiencing softer trends that could weigh on performance. The surgical pain segment declined year over year, as the benefits from the NOPAIN Act are taking longer than anticipated to materialize. Although the long-term value proposition remains intact, the slower rollout is delaying growth contribution.
The GAME READY business was down year over year, reflecting ongoing restructuring and a shift in its go-to-market model. Even within the broader portfolio, normalized growth in the Pain Management and Recovery segment remained modest at low-single digits, highlighting uneven performance across business lines. These factors suggest that not all segments are contributing equally to growth, which could temper overall momentum.
Ongoing Portfolio Restructuring & Execution Risks: Avanos Medical is undergoing a significant portfolio transformation, which introduces execution risk in the near term. The company is exiting its IV therapy business, restructuring GAME READY and has already divested its hyaluronic acid segment. While these actions are aimed at improving long-term focus and profitability, they also reduce near-term revenue contribution and create potential disruption during the transition period.
At the same time, AVNSAVNS-- continues to pursue bolt-on acquisitions, such as Nexus Medical, and integrates them into its operations. Although early performance has been encouraging, sustained success will depend on effective execution, including integration, commercialization and achieving expected growth synergies. Any delays in these initiatives could offset anticipated benefits and weigh on near-term financial performance.
Estimate Trend
Avanos is witnessing a stable estimate revision trend for fiscal 2026. In the past 60 days, the Zacks Consensus Estimate for earnings has been unchanged at $1.08 per share.
The Zacks Consensus Estimate for the company’s first-quarter fiscal 2026 revenues is pegged at $169.4 million, indicating 1.1% growth from the year-ago quarter’s reported number. Earnings estimate of 23 cents per share implies an 11.5% year-over-year decline.
Stocks to Consider
Some better-ranked stocks in the broader medical space that have announced quarterly results are Intuitive Surgical ISRG, Phibro Animal Health PAHC and Cardinal Health CAH.
Intuitive Surgical, sporting a Zacks Rank #1 (Strong Buy) at present, reported fourth-quarter 2025 adjusted earnings per share (EPS) of $2.53, beating the Zacks Consensus Estimate by 12.4%. Revenues of $2.87 billion surpassed the Zacks Consensus Estimate by 4.7%. You can see the complete list of today’s Zacks #1 Rank stocks here.
ISRG has an estimated long-term earnings growth rate of 15.7% compared with the industry’s 13.6% rise. The company’s earnings beat estimates in the trailing four quarters, the average surprise being 13.2%.
Phibro Animal Health reported second-quarter fiscal 2026 adjusted EPS of 87 cents, which surpassed the Zacks Consensus Estimate by 27.1%. Revenues of $373.9 million beat the Zacks Consensus Estimate by 4.7%. It currently flaunts a Zacks Rank #1.
PAHC has an estimated long-term earnings growth rate of 21.5% compared with the industry’s 12.5% rise. The company’s earnings beat estimates in the trailing four quarters, the average surprise being 20.1%.
Cardinal Health reported a second-quarter fiscal 2026 adjusted EPS of $2.63, which surpassed the Zacks Consensus Estimate by 10%. Revenues of $65.6 billion beat the Zacks Consensus Estimate by 0.9%. It currently carries a Zacks Rank #2 (Buy).
CAH has an estimated long-term earnings growth rate of 15% compared with the industry’s 9.2% rise. The company’s earnings beat estimates in the trailing four quarters, the average surprise being 9.3%.
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This article originally published on Zacks Investment Research (zacks.com).
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