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3 Medical Products Stocks Navigating Industry Challenges (Revised)

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The global economy faced macroeconomic headwinds like supply-chain challenges and rising cost of materials just when it had started recovering from the pandemic blues. On top of that, a strengthening dollar started to impact the ex-U.S. sales of several companies. The Zacks Medical – Products industry bore the brunt along with broader market participants. The industry has also been marred by labor shortages leading to rising wages. Meanwhile, COVID-19 impacts remain uncertain. However, declining demand for tests is hurting revenues. Certain companies are raising prices of products to fight inflationary pressure.  However, new product launches and expansion into new territories are likely to drive revenues going forward. Moreover, certain medical procedures related to pacing, cardiac surgery, neurovascular and diabetes are showing a strong demand trend. The European and International markets are also showing signs of a steady recovery in demand for medical products.

Despite the ongoing macro headwinds, several industry players have not shown signs of slowing down yet. Industry participants like QuidelOrtho (QDEL - Free Report) , Lantheus (LNTH - Free Report) and TG Therapeutics (TGTX - Free Report) are likely to gain from the rebound in demand and new cost-cutting initiatives.

Industry Description

The industry includes companies providing medical products and cutting-edge technologies for diagnosis, observation, consultation, treatment and other healthcare services. The industry players are primarily focused on research and development. The industry participants primarily cater to vital therapeutic areas like cardiovascular, nephrology and urology devices, to name a few. Strengthening dollar and labor shortage is hurting top-line growth. Lockdowns across several countries, notably China, in the first half of 2022 led to significant supply chain disruptions. Recent inflationary pressure and supply-chain issues are weighing on the gross and operating margins of the industry players. The trend is likely to continue for the rest of 2022. However, rising demand for medical procedures along with cost-cutting initiatives, is likely to drive industry performance going forward.

Major Trends Shaping the Future of the Medical Products Industry

AI, Medical Mechatronics & Robotics: The rising utilization of minimally-invasive robot-assisted surgeries, self-automated home-based care, use of IT for quick and improved patient care and the shift of the payment system to a value-based model underscore the growing influence of AI in the Medical Products space. In fact, mechatronics — a high-end technology incorporating electronics, machine learning and mechanical engineering — is rapidly becoming a defining characteristic of the space. There are several companies that have shown substantial prowess when it comes to their involvement in AI, robotics and medical mechatronics. Advancements in robot-assisted surgical platforms continue to be crucial with respect to minimally-invasive surgery that helps in reducing trauma associated with open surgery. With respect to Mechatronics, the benefits of the same have been demonstrated in the form of 3D printing, which has altered the face of the medical devices industry. Currently, 3D printing is being utilized to print stem cells, blood vessels, heart tissues, prosthetic organs and skin.

Rising Demand for IVD: Toward the end of February 2020, the COVID-19 outbreak started to spread rapidly and took the shape of a pandemic. This led to a rise in global demand for diagnostic testing kits in order to curb the spread of the virus. The need of the hour became testing and that led to a shift in the pipeline of IVD products, with a large number of rapid, point-of-care devices going into development. Companies not only received emergency use authorization (EUA) from the FDA but also bolstered production to aid testing shortages. The industry players anticipate significant demand for rapid diagnostic testing in the future as well and are well-poised to capitalize on the same.

Emerging Markets Hold Promise: Given the rising medical awareness and economic prosperity, emerging economies have been witnessing solid demand for medical products. An aging population, relaxed regulations, cheap skilled labor, increasing wealth and government focus on healthcare infrastructure make these markets extremely lucrative for global medical device players.

Zacks Industry Rank

The Zacks Medical Products industry falls within the broader Zacks Medical sector.

It carries a Zacks Industry Rank #149, which places it in the bottom 41% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

Before we present a few medical products stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Performance

The industry has underperformed its own sector and the Zacks S&P 500 composite in the past year.

Stocks in this industry have collectively declined 45.6% compared with the Zacks Medical sector’s decline of 18.7%. The S&P 500 has lost 16.4% in the same time frame.

One Year Price Performance


Industry's Current Valuation

On the basis of the forward 12-month price-to-earnings (P/E), which is commonly used for valuing medical stocks, the industry is currently trading at 21.2X compared with the S&P 500’s 17.8X and the sector’s 22.2X.

Over the last five years, the industry has traded as high as 29.9X and as low as 19.2X, with the median being at 23.7X, as the charts below show.

Price-to-Earnings Forward Twelve Months (F12M)

Price-to-Earnings Forward Twelve Months (F12M)

3 Promising Medical Products Stocks

QuidelOrtho: The company is a key player in the provision of in-vitro diagnostics technologies designed for point-of-care settings, clinical labs and transfusion medicine. The company sells its products directly to end users and distributors for professional use in physician offices, hospitals, clinical laboratories, reference laboratories, urgent-care clinics, leading universities, retail clinics, pharmacies and wellness screening centers. The company has a strong portfolio of various products along with several launches in the pipeline.

Continued strength in QuidelOrtho’s comprehensive product portfolio and expanded global commercial footprint also raise optimism about the stock. The progress made by the company regarding the integration of its QuidelOrtho business is also promising. Following its third-quarter results, the company expects total revenue growth at a constant exchange rate (“CER”) of 6-8% for 2022, up from the previous guidance of 3-6%. Adjusted EPS is now expected to be within $13.20-$13.80, up from the prior guidance of $11.80-$12.75. Currently, the company carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

For this San Diego, CA-based company, the Zacks Consensus Estimate for 2022 revenues is pegged at $3.91 billion. The consensus mark for earnings stood at $13.43 per share. It has a trailing four-quarter earnings surprise of 60.13%, on average.

Price and Consensus: QDEL

Lantheus: Lantheus is involved in developing, manufacturing, selling and distributing diagnostic medical imaging agents and products for diagnosing cardiovascular and other diseases. It serves hospitals, clinics, group practices, integrated delivery networks, group purchasing organizations, radio pharmacies and wholesalers. The company reported robust top and bottom-line growth for the third quarter on the back of its key product, Pylarify — the PSMA PET imaging agent of choice. Strong quarterly results led the company to raise its revenue and adjusted earnings guidance by 2.5% and 7.5% respectively, as measured at the midpoint of the earlier and new guided ranges. Currently, the company has a Zacks Rank #2.

For this North Billerica, MA-based company, the Zacks Consensus Estimate for fiscal 2022 revenues suggests growth of 115.5%. The consensus mark for earnings indicates an improvement of 679.6%. It has a trailing four-quarter earnings surprise of 51.09%, on average.

Price and Consensus: LNTH

 

TG Therapeutics: The company is a biopharmaceutical company focused on the development of a monoclonal antibody for the treatment of various B-cell proliferative disorders, including lymphoma, leukemia, and auto-immune diseases. It ended the third quarter with a narrower-than-expected loss. A regulatory application seeking approval for its potential first commercialized drug, ublituximab, as a treatment for relapsing forms of multiple sclerosis (RMS) is under review with the FDA. A decision related to the approval for ublituximab is expected by the end of the year. A potential approval is likely to drive share prices significantly, as the company will have drugs targeting the lucrative RMS market.

For this New York City-based company, the Zacks Consensus Estimate for 2022 revenues suggest a decline of 3.7%. The consensus estimate for earnings indicates an improvement of 49.8%. The consensus estimate for 2023 revenues suggests growth of 1688%. It has a trailing four-quarter earnings surprise of 13.59%, on average. Presently, the company carries a Zacks Rank of 2.

Price and Consensus: TGTX

 

(We are reissuing this article to correct a mistake. The original article, issued on November 18, 2022, should no longer be relied upon.)
 



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