Profits Flow Freely in the Medical Instruments Industry
The word ‘innovation’ is used to a great extent in the marketplace. But the term may not be more aptly applied than when it refers to the medical instruments industry. It seems like every time you turn around, a new and more revolutionary product becomes available that can sustain the quality of life for millions of people around the globe. The medical instruments industry has been a healthy space for several months now, and enjoys a Zacks Industry Rank of 2.93, according to Nick Raich's "Weekly Earnings and Sector Update," which places it 94th out of more than 200 industries. With medical instruments becoming more common, and at times delving into areas that had previously only been treatable through pharmaceuticals, the industry’s potential for investors may be as prevalent as those for patients.
The two hottest products in the medical instruments industry right now are cardiac resynchronization therapy (CRT) and drug-eluting stents. CRT involves a pacemaker-type device that sends tiny electrical pulses to the right and left ventricles of the heart to help them beat in unison – or in sync. With approximately 22 million people around the world suffering through some sort of heart failure, and almost 2 million new cases diagnosed each year, there is certainly a large market and great demand for CRT. Gunderson estimates the CRT market in the US at $1.7 billion, up $500 million from two years ago.
Stents are tiny tubes inserted into arteries to improve blood flow during a procedure called angioplasty. About 800,000 angioplasties are performed each year. However, a significant number of people implanted with stents experience reblocking, or re-growth, through a process called restenosis. Drug-eluting stents are coated with a drug that interferes with this process. Gunderson estimates the drug-eluting stent market in the US to be at $4.1 billion this year, up from zero two years ago.
The most exciting aspect of the medical instruments industry for both patients and investors is its ever-evolving nature. For example, Cyberonics (NASDAQ:CYBX - Analyst Report) got some big news earlier this week when an FDA panel approved, with conditions, its VNS Therapy™ System for depression. Specifically, the device, which is already used to treat epilepsy, was approved “as an adjunctive long-term treatment of chronic or recurrent depression for patients over the age of 18 who are experiencing a major depressive episode that has not had an adequate response to four or more adequate antidepressant treatments.” The recommendation doesn’t mean much until the full FDA gives its okay, but the administration usually goes along with its advisory panels. To investors, this news is important because it once again shows how the medical instruments industry is moving into a category that had previously been monopolized by pharmaceuticals.
However, innovation is not enough to make a good investment. Gunderson wants to see evidence of good management put into practice. He also stresses the importance of a product pipeline in this what-have-you-done-for-me-lately market. The analyst also wants to see high margins and historical earnings increases over time. Analysts can help you find those companies that meet this and other criteria in order to keep your portfolio pumping out higher profit.
What Do the All Stars Recommend?
Zacks tracks the analysts who cover the medical instruments industry and ranks them based on the performance of stocks recommended. Some of the top-ranked analysts include: D. Chandler of Needham & Company; T. Gunderson of Piper Jaffray; W. King of Wells Fargo; J. Mills of First Albany; and C. Simmer of Miller Johnson Steichen Kinnard, Inc. Get their recommendations and those for all others in the industry by clicking here .
Top Consensus Stocks
Below are the stocks recommended by the most 5-Star analysts in the medical instruments industry.
Cytyc Corporation (NASDAQ: CYTC ) is a leading medical device company that designs, develops, manufacturers, and markets innovative and clinically effective products primarily focused on women’s health. The company’s products cover a range of women’s health applications, including cervical cancer screening, breast cancer risk assessment, and treatment of excessive menstrual bleeding. For its first quarter, Cytyc reported net income of $20.6 million, or 18 cents per diluted share, excluding non-recurring charges, compared with $19.8 million, or 17 cents, last year. That result also matched the consensus. Revenues in the quarter advanced +11% to $80.7 million, vs. $72.6 million. One of the major accomplishments in the quarter was the acquisition of Novacept® in late March. Novacept manufactures and markets the NovaSure® System, which treats menorrhagia, or excessive menstrual bleeding. Patrick J. Sullivan, Chairman, President and CEO of Cytyc, said “We believe that the acquisition of Novacept is a great strategic opportunity for Cytyc as it builds on our reputation and leadership position in providing innovative products for women’s health, increases our sales and marketing resources to OB/GYN physicians, leverages our international infrastructure, and puts us on a strong and diversified growth trajectory.” To further research Cytyc Corporation, click CYTC .
Beckman Coulter, Inc. (NYSE: BEC - Snapshot Report) is a leading manufacturer of biomedical testing instrument systems, tests and supplies that simplify and automate laboratory processes. Spanning the biomedical testing continuum – from systems biology and clinical research to laboratory diagnostics and point-of-care testing – the company’s 200,000 installed systems provide essential biomedical information to enhance health care around the world. Beckman Coulter is scheduled to report its second quarter numbers on July 26th. Early May saw the company report net earnings of 54 cents per diluted share, which topped the consensus by almost +6% while beating the year-ago performance by +20%. Sales improved +14.9% in the quarter, or +10.9% in comparable constant currency. Sales turned out to be unseasonably strong thanks to significant hardware shipments and installations, along with the continued contribution of new products introduced in 2003. Its Clinical Diagnostics Division led the way with sales that improved +17% on strength in all three product areas.
More recently, Beckman Coulter began shipping its new FC 500 CXP flow cytometry system. The FC 500 CXP system assists clinical labs in achieving efficient sample and data management, while increasing productivity. By expanding the FC 500 system beyond the life science and clinical research segments, into the clinical diagnostics laboratory, Beckman Coulter increases the available market for the system by about $350 million per year. With a strategy that stresses simplification, innovation and automation, it’s easy to see why this company is one of the leaders in the medical instruments industry. To further research Beckman Coulter, click BEC - Snapshot Report.
Medtronic, Inc. (NYSE: MDT - Analyst Report) is the world leader in medical technology, providing lifelong solutions for people with chronic disease. The company offers products, therapies and services that enhance or extend the lives of million of people. Market share gains and accelerating growth across all operating segments helped this innovative company cap off a successful year with a strong fiscal fourth quarter report in late May. Excluding a charge, Medtronic reported net earnings of 48 cents per diluted share on record revenues of $2.665 billion. The earnings result topped the consensus by more than +4%, while it also succeeded in beating the year-ago total by +20%. Revenues advanced by +24.1%. Medtronic stated the breadth and depth of its entire product portfolio was clearly evident as the revenue growth rate was the highest it had reported in four years. Art Collins, Chairman and CEO of Medtronic, stated, “Over the last several years, Medtronic has increased its investments in research and development, operating infrastructure and market development. These investments are now helping to drive growth while proving better medical outcomes for an increasing number of patients.”
As an example of its innovation and breadth across the globe, Medtronic recently announced the European market release of the InSync Sentry™ cardiac resynchronization therapy defibrillator (CRT-D). According to the company, The InSync is the world’s first CRT-D device with automatic fluid status monitoring, which can be programmed to alert patients and clinicians to changes in fluid accumulation in the lungs and thoracic cavity. Heart failure is the leading cause of hospital admission, and most of those admissions are due to fluid accumulation in the lungs. To further research Medtronic, Inc., click MDT - Analyst Report.
Stryker Corporation (NYSE: SYK - Analyst Report) is a leader in the worldwide orthopaedic market and is one of the world’s largest medical device companies. The company delivers results through a wide range of capabilities including joint replacements, trauma, spine and micro implant systems, orthobiologics, powered surgical instruments, surgical navigation systems and endoscopic products as well as patient handling and emergency medical equipment. Stryker will report its second quarter numbers on July 15th. In mid-April, the company reported diluted net earnings per share that jumped by approximately +30% from last year, while also beating the consensus. Net sales reached $1.04 billion, which was about +22% better than the year-ago result of $847 million. Excluding the impact of foreign currency, net sales improved +17%. Strong shipments of Orthopaedic Implants and MedSurg Equipment, along with higher revenue from Physical Therapy Services, helped domestic sales increase +20% to $657.9 million. Worldwide sales of Orthopaedic Implants jumped +23%, while worldwide sales of MedSurg Equipment rose +21% and Physical Therapy Services moved forward +16%. To further research Stryker Corporation, click SYK - Analyst Report.
Varian Medical Systems (NYSE: VAR - Snapshot Report) is the world’s leading manufacturer of integrated cancer therapy systems, which are treating thousands of patients per day. The company is also a premier supplier of X-ray tubes and flat-panel digital subsystems for imaging in medical, scientific, and industrial applications. For the second quarter of fiscal 2004, Varian Medical posted net earnings of 61 cents per diluted share on sales of $321 million. The earnings result exceeded the consensus by about +7% and topped the year-ago total of 48 cents, while sales jumped +20% year-over-year. Net orders in the quarter improved +19% to $348 million. At the end of the quarter, backlog stood at $877 million, marking a +14% improvement from last year. Varian Medical generated positive operating cash flow and ended the quarter with about $396 million in cash and marketable securities. The company is scheduled to report its next quarterly results on July 29th. To further research Varian Medical Systems, click VAR - Snapshot Report.