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HERE'S A STOCK that'll send chills up your spine. NuVasive, a maker of medical devices used in back surgeries, has seen its shares surge 32% off a June low to close at $20.36 on Thursday. A smaller-than-expected second-quarter operating loss and a break-even forecast for the fourth quarter emboldened investors over the summer. Price-target hikes this week by a pair of analysts signal the San Diego company could be headed even higher.

Nine-year-old NuVasive manufactures surgical tools and monitoring systems that help surgeons perform minimally invasive spinal surgeries, including spinal fusions, a common procedure where two or more vertebrae are fused together. Its Maximum Access Surgery platform lets surgeons operate by entering a patient laterally, that is from the side, rather than through the typical entry points of the abdomen or back. Known as the eXtreme Lateral Interbody Fusion, or XLIF, the procedure has won over doctors and patients alike by reducing the time spent in the operating room as well as in recovery.

The procedure also lowers the cost of back surgery, which appeals to health insurers. NuVasive reported in July that by using XLIF the Providence Medford Medical Center in Medford, Ore., posted a 20% cost savings compared to the traditional approach.

Currently the overall market for spinal surgery is growing about 15% annually. Last week investment bank W.R. Hambrecht & Co. forecast a 16.6% compounded annual growth rate through 2008. And with a graying population of baby boomers remaining active later in life, the market is expected to keep expanding.

"The company's business has momentum, and we expect we could see as much as 10% potential upside to current expectations for 2006," wrote Lehman Brothers analyst Bob Hopkins on Thursday after attending the North America Spine Society's annual meeting this week. "NASS has made us more bullish on NuVasive for a number of reasons including: we have learned that treating severe scoliosis patients laterally represents a new indication that we have not previously modeled." Hopkins raised his price target to $25 from $23. (Lehman Brothers has an investment-banking relationship with NuVasive.)

This comes on the heels of Monday's report from Bank of America analyst Stephen Lichtman that talked up the stock and assigned it a $23 price target. Lichtman figures NuVasive should grow in value as it continues to gain share in the $3-billion-plus world-wide spine market. A recent shift to a dedicated sales force should improve market penetration and increase revenue per procedure, he argues, and a strong pipeline of new products expected to launch in 2007 adds to the appeal. (Bank of America has an investment-banking relationship with NuVasive.)

The real jewel in NuVasive's crown may be NeuroVision, a monitor that helps doctors navigate the neural maze within a patient's back. With combinations of lights and sounds, the device prevents injury by monitoring the doctor's progress and telling him when he's getting too close to a nerve. Currently, more than 1,000 doctors have been trained to use the system. In the second quarter alone, the company trained 151 surgeons; a total 450 to 475 are projected to undergo training this year.

In addition, last week the company announced the first transplant using its NeoDisc, a cervical disc replacement device. In June, the company received approval from the Food and Drug Administration to begin clinical trials for the device. Lichtman predicts NeoDisc will win FDA approval in 2010.

"Feedback on the NeoDisc cervical disc has been outstanding," says Hopkins of Lehman Brothers.

For the second quarter of 2006, the company reported a net loss of $18.5 million, or 56 cents a share, much wider than the $4.1 million, or 17 cents, posted in the year-ago quarter. But excluding one-time charges such as amortization of acquired intangible assets and stock-based compensation, the pro-forma loss came to $3.7 million, or 11 cents, beating the Thomson First Call consensus estimate for a loss of 24 cents. Revenues jumped 50% to $22.7 million. The company posted gross margins of 78%. As of June 30, NuVasive held $143.5 million in cash and short-term investments and burned cash at a rate of about $4 million a quarter.

The two big drivers for NuVasive's growth include the launch of new products and the conversion of a nonexclusive sales force into an exclusive sales force totaling 175 reps.

"Last year, we had a similar number of representatives, but they didn't sell NuVasive full time. They also sold competitors' products and maybe spent 30% of their time on us," says Kevin O'Boyle, NuVasive's chief financial officer. "At the end of the second quarter we completed the turnover, so the sales team represents us 100% of the time. And we're seeing nice momentum in revenue from that."

On July 27 NuVasive predicted full-year revenues in the range of $90 million to $92 million with break-even earnings for the fourth quarter before expensing stock options. The company added it expects to sustain a non-GAAP gross margin level of 81%. For 2005, the company lost $30.3 million as sales surged 61% to $61.8 million with 35% growth in procedures performed. NuVasive anticipates its annual sales growth over the next three years will exceed the 15% projected annual growth rate for the spinal fusion market.

You don't need to be a brain surgeon, or back surgeon for that matter, to understand improving fundamentals like those.