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4 Medical Product Stocks to Buy Amid Recovering Prospects
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The medical sector and other global economies are facing macroeconomic challenges such as supply-chain constraints, increased material costs and shortage of workers after the pandemic crisis. Despite the revenue recovery in the first half of 2023, following gradual economic reopening in 2022, the margins were affected by these headwinds. The Zacks Medical – Products industry bore the brunt along with broader market participants. Revenues are expected to grow from introduction of new products and expansion into new markets. Some medical procedures related to heart rhythm, heart surgery, brain blood vessels and blood sugar have a high demand trend, which buoys optimism. Although the weakness in the industry’s bottom line is likely to continue in the second half of 2023, the impact of rising costs is likely to alleviate as the year progresses. The industry players are increasing prices of their products and services, which is helping offset the impact of rising costs and expenses. The demand for medical products is also improving steadily in Europe and other markets. Meanwhile, COVID-19 impacts remain uncertain. However, the declining demand for COVID-19 related products continues to hurt revenues.
Meanwhile, industry players like Abbott Laboratories (ABT - Free Report) , Stryker (SYK - Free Report) , Zimmer Biomet (ZBH - Free Report) and Haemonetics (HAE - Free Report) have adapted well to changing consumer preferences and are still witnessing an uptrend in their share prices.
Industry Description
The industry includes companies providing medical products and cutting-edge technologies for diagnosis, observation, consultation, treatment and other healthcare services. These companies are primarily focused on research and development, and primarily cater to vital therapeutic areas like cardiovascular, nephrology and urology devices, to name a few. Strengthening dollar and labor shortage are hurting their 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 labor shortages are weighing on gross and operating margins of the industry players. The trend is likely to continue for the rest of 2023. However, rising demand for medical procedures, along with cost-cutting initiatives, is likely to drive the industry’s performance going forward.
Major Trends Shaping the Future of the Medical Products Industry
AI, Medical Mechatronics & Robotics: The rising adoption 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 the 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 used to print stem cells, blood vessels, heart tissues, prosthetic organs and skin.
Rising Demand for IVD: The COVID-19 outbreak led to a rise in global demand for diagnostic testing kits in order to curb the spread of the virus. Testing became the need of the hour 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 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 currently carries a Zacks Industry Rank #168, which places it in the bottom 33% 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 product 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 gained 0.8% against the Zacks Medical sector’s decline of 4.4%. The S&P 500 has increased 11.5% 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 22.7X compared with the S&P 500’s 20.2X and the sector’s 22.9X.
Over the last five years, the industry has traded as high as 29.8X and as low as 19.1X, with the median being at 23.7X, as the charts show.
Price-to-Earnings Forward Twelve Months (F12M)
Price-to-Earnings Forward Twelve Months (F12M)
4 Promising Medical Product Stocks
Abbott Laboratories: It discovers, develops, manufactures and sells a diversified line of health care products. The company operates through four segments — Established Pharmaceuticals Division (EPD), Medical Devices, Nutrition and Diagnostics.
Abbott had an encouraging first-quarter results, led by double-digit growth in Medical Devices, EPD and Nutrition. Within EPD, sales increased 11% in the quarter led by strong performance in Brazil, China and Southeast Asia. The Diabetes Care business, a part of Medical devices segment, continued to benefit from the growing sales of its sensor-based continuous glucose monitoring system, FreeStyle Libre. However, the top line in the first quarter reflected unfavorable year-over-year comparison due to high demand for COVID-related products and services in 2022. Following its strong first-quarter 2023 results, the company expects total revenue growth of at least high-single digits, excluding COVID-19 testing-related sales. COVID testing-related sales are expected to be around $1.5 billion in 2023. Adjusted EPS is anticipated in the range of $4.30-$4.50. Currently, the company carries a Zacks Rank #2 (Buy).
For this Abbott Park, IL-based company, the Zacks Consensus Estimate for 2023 revenues is pegged at $39.71 billion. The consensus mark for earnings is pinned at $4.40 per share. The company has a trailing four-quarter average earnings surprise of 12.44%.
Price and Consensus: ABT
Stryker: It is one of the world’s largest medical device companies operating in the global orthopedic market. The company has three business segments — Orthopaedics, MedSurg and Neurotechnology & Spine. It continues to deliver strong organic sales growth on the back of robust demand for its MedSurg and Neurotechnology businesses, led by Endoscopy, Instruments and Neurocranial.
Orthopedics and Spine businesses are also on an encouraging growth path, reflecting procedural recovery throughout the quarter. Internationally, the company continues to post strong organic growth, highlighted by robust organic growth in Europe and emerging markets. Stryker continues to witness strong demand for its robotic-arm assisted surgery platform, Mako, on the back of its unique features and healthy order book despite financial constraints stemming from the COVID-19 pandemic.
However, hospital staffing pressures weighed on pockets around the globe, impeding growth. Following its strong first-quarter results, the company expects total revenue growth at a constant exchange rate (CER) of 8-9% for 2023. Adjusted EPS is now expected in the band of $10.05-$10.25, up from the prior guidance of $9.85-$10.15. Currently, the company carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
For this Kalamazoo, MI-based company, the Zacks Consensus Estimate for 2023 revenues is pegged at $19.99 billion. The consensus mark for earnings is pinned at $10.16 per share. The company has a trailing four-quarter average earnings surprise of 1.60%.
Price and Consensus: SYK
Zimmer Biomet: It is a leading musculoskeletal healthcare company that designs, manufactures and markets orthopedic reconstructive products; sports medicine, biologics, extremities and trauma products; spine, bone healing, craniomaxillofacial and thoracic products; dental implants; and related surgical products.
The company ended the first quarter with better-than-expected earnings and revenues. Each of its geographic segments and product divisions recorded year-over-year sales growth at CER. Even amid the challenging macroeconomic conditions, expansion in the company’s adjusted gross and operating margins is encouraging.
Despite the near-term pressure, Zimmer Biomet is putting efforts for business recovery. Meanwhile, the spin-off of its dental & spine arm as part of its ongoing transformation to accelerate growth and drive value creation looks promising. The last few quarters witnessed gradual stability in the global musculoskeletal market with better-than-expected sales growth in certain geographies, banking on improved procedural volume. Following encouraging first-quarter results, the company expects revenues and adjusted earnings to grow 5-6% and 7.4-8.9%, respectively, compared with the 2022 metrics. Currently, the company carries a Zacks Rank #2.
For this Warsaw, IN-based company, the Zacks Consensus Estimate for 2023 revenues is pegged at $7.34 billion. The consensus mark for earnings is pinned at $7.46 per share. The company has a trailing four-quarter average earnings surprise of 7.38%.
Price and Consensus: ZBH
Haemonetics: It provides blood management solutions to customers encompassing blood and plasma collectors, hospitals and health care providers globally. The company’s portfolio of integrated devices, information management and consulting services offers blood management solutions for each facet of the blood supply chain, facilitating better clinical outcomes. The robust performance of the Plasma and Hospital business, with continued strength in the Hemostasis Management product line, instills optimism. Robust contributions from the Vascular Closure business also seem promising. The expansion of both margins is an added advantage.
The company has been witnessing strong growth in Plasma franchise for quite some time. In the global plasma market, Haemonetics holds an approximate 80% equity. It is currently witnessing plasma market growth above historic rates, driven by an industry striving to double collections by 2025 and the rising demand for plasma-based medicines. Strong volume growth in plasma and hospitals, including additional savings from the Operational Excellence Program, is likely to drive the company’s performance going forward in 2023.
Following the robust fiscal fourth-quarter 2023 results, Haemonetics expects GAAP total revenues to grow in the range of 4-7% on a reported basis. Organic revenue growth is currently expected in the band of 5-8%. HAE anticipates adjusted earnings to lie between $3.45 and $3.75 per share.
For this Boston, MA-based company, the Zacks Consensus Estimate for fiscal 2023 revenues indicates an improvement of 6.6% year over year. The consensus estimate for earnings implies year-over-year growth of 18.2%. The company has a trailing four-quarter earnings surprise of 12.21%, on average. Presently, Haemonetics carries a Zacks Rank of 2.
Price and Consensus: HAE
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4 Medical Product Stocks to Buy Amid Recovering Prospects
The medical sector and other global economies are facing macroeconomic challenges such as supply-chain constraints, increased material costs and shortage of workers after the pandemic crisis. Despite the revenue recovery in the first half of 2023, following gradual economic reopening in 2022, the margins were affected by these headwinds. The Zacks Medical – Products industry bore the brunt along with broader market participants. Revenues are expected to grow from introduction of new products and expansion into new markets. Some medical procedures related to heart rhythm, heart surgery, brain blood vessels and blood sugar have a high demand trend, which buoys optimism. Although the weakness in the industry’s bottom line is likely to continue in the second half of 2023, the impact of rising costs is likely to alleviate as the year progresses. The industry players are increasing prices of their products and services, which is helping offset the impact of rising costs and expenses. The demand for medical products is also improving steadily in Europe and other markets. Meanwhile, COVID-19 impacts remain uncertain. However, the declining demand for COVID-19 related products continues to hurt revenues.
Meanwhile, industry players like Abbott Laboratories (ABT - Free Report) , Stryker (SYK - Free Report) , Zimmer Biomet (ZBH - Free Report) and Haemonetics (HAE - Free Report) have adapted well to changing consumer preferences and are still witnessing an uptrend in their share prices.
Industry Description
The industry includes companies providing medical products and cutting-edge technologies for diagnosis, observation, consultation, treatment and other healthcare services. These companies are primarily focused on research and development, and primarily cater to vital therapeutic areas like cardiovascular, nephrology and urology devices, to name a few. Strengthening dollar and labor shortage are hurting their 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 labor shortages are weighing on gross and operating margins of the industry players. The trend is likely to continue for the rest of 2023. However, rising demand for medical procedures, along with cost-cutting initiatives, is likely to drive the industry’s performance going forward.
Major Trends Shaping the Future of the Medical Products Industry
AI, Medical Mechatronics & Robotics: The rising adoption 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 the 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 used to print stem cells, blood vessels, heart tissues, prosthetic organs and skin.
Rising Demand for IVD: The COVID-19 outbreak led to a rise in global demand for diagnostic testing kits in order to curb the spread of the virus. Testing became the need of the hour 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 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 currently carries a Zacks Industry Rank #168, which places it in the bottom 33% 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 product 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 gained 0.8% against the Zacks Medical sector’s decline of 4.4%. The S&P 500 has increased 11.5% 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 22.7X compared with the S&P 500’s 20.2X and the sector’s 22.9X.
Over the last five years, the industry has traded as high as 29.8X and as low as 19.1X, with the median being at 23.7X, as the charts show.
Price-to-Earnings Forward Twelve Months (F12M)
Price-to-Earnings Forward Twelve Months (F12M)
4 Promising Medical Product Stocks
Abbott Laboratories: It discovers, develops, manufactures and sells a diversified line of health care products. The company operates through four segments — Established Pharmaceuticals Division (EPD), Medical Devices, Nutrition and Diagnostics.
Abbott had an encouraging first-quarter results, led by double-digit growth in Medical Devices, EPD and Nutrition. Within EPD, sales increased 11% in the quarter led by strong performance in Brazil, China and Southeast Asia. The Diabetes Care business, a part of Medical devices segment, continued to benefit from the growing sales of its sensor-based continuous glucose monitoring system, FreeStyle Libre. However, the top line in the first quarter reflected unfavorable year-over-year comparison due to high demand for COVID-related products and services in 2022. Following its strong first-quarter 2023 results, the company expects total revenue growth of at least high-single digits, excluding COVID-19 testing-related sales. COVID testing-related sales are expected to be around $1.5 billion in 2023. Adjusted EPS is anticipated in the range of $4.30-$4.50. Currently, the company carries a Zacks Rank #2 (Buy).
For this Abbott Park, IL-based company, the Zacks Consensus Estimate for 2023 revenues is pegged at $39.71 billion. The consensus mark for earnings is pinned at $4.40 per share. The company has a trailing four-quarter average earnings surprise of 12.44%.
Price and Consensus: ABT
Stryker: It is one of the world’s largest medical device companies operating in the global orthopedic market. The company has three business segments — Orthopaedics, MedSurg and Neurotechnology & Spine. It continues to deliver strong organic sales growth on the back of robust demand for its MedSurg and Neurotechnology businesses, led by Endoscopy, Instruments and Neurocranial.
Orthopedics and Spine businesses are also on an encouraging growth path, reflecting procedural recovery throughout the quarter. Internationally, the company continues to post strong organic growth, highlighted by robust organic growth in Europe and emerging markets. Stryker continues to witness strong demand for its robotic-arm assisted surgery platform, Mako, on the back of its unique features and healthy order book despite financial constraints stemming from the COVID-19 pandemic.
However, hospital staffing pressures weighed on pockets around the globe, impeding growth. Following its strong first-quarter results, the company expects total revenue growth at a constant exchange rate (CER) of 8-9% for 2023. Adjusted EPS is now expected in the band of $10.05-$10.25, up from the prior guidance of $9.85-$10.15. Currently, the company carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
For this Kalamazoo, MI-based company, the Zacks Consensus Estimate for 2023 revenues is pegged at $19.99 billion. The consensus mark for earnings is pinned at $10.16 per share. The company has a trailing four-quarter average earnings surprise of 1.60%.
Price and Consensus: SYK
Zimmer Biomet: It is a leading musculoskeletal healthcare company that designs, manufactures and markets orthopedic reconstructive products; sports medicine, biologics, extremities and trauma products; spine, bone healing, craniomaxillofacial and thoracic products; dental implants; and related surgical products.
The company ended the first quarter with better-than-expected earnings and revenues. Each of its geographic segments and product divisions recorded year-over-year sales growth at CER. Even amid the challenging macroeconomic conditions, expansion in the company’s adjusted gross and operating margins is encouraging.
Despite the near-term pressure, Zimmer Biomet is putting efforts for business recovery. Meanwhile, the spin-off of its dental & spine arm as part of its ongoing transformation to accelerate growth and drive value creation looks promising. The last few quarters witnessed gradual stability in the global musculoskeletal market with better-than-expected sales growth in certain geographies, banking on improved procedural volume. Following encouraging first-quarter results, the company expects revenues and adjusted earnings to grow 5-6% and 7.4-8.9%, respectively, compared with the 2022 metrics. Currently, the company carries a Zacks Rank #2.
For this Warsaw, IN-based company, the Zacks Consensus Estimate for 2023 revenues is pegged at $7.34 billion. The consensus mark for earnings is pinned at $7.46 per share. The company has a trailing four-quarter average earnings surprise of 7.38%.
Price and Consensus: ZBH
Haemonetics: It provides blood management solutions to customers encompassing blood and plasma collectors, hospitals and health care providers globally. The company’s portfolio of integrated devices, information management and consulting services offers blood management solutions for each facet of the blood supply chain, facilitating better clinical outcomes. The robust performance of the Plasma and Hospital business, with continued strength in the Hemostasis Management product line, instills optimism. Robust contributions from the Vascular Closure business also seem promising. The expansion of both margins is an added advantage.
The company has been witnessing strong growth in Plasma franchise for quite some time. In the global plasma market, Haemonetics holds an approximate 80% equity. It is currently witnessing plasma market growth above historic rates, driven by an industry striving to double collections by 2025 and the rising demand for plasma-based medicines. Strong volume growth in plasma and hospitals, including additional savings from the Operational Excellence Program, is likely to drive the company’s performance going forward in 2023.
Following the robust fiscal fourth-quarter 2023 results, Haemonetics expects GAAP total revenues to grow in the range of 4-7% on a reported basis. Organic revenue growth is currently expected in the band of 5-8%. HAE anticipates adjusted earnings to lie between $3.45 and $3.75 per share.
For this Boston, MA-based company, the Zacks Consensus Estimate for fiscal 2023 revenues indicates an improvement of 6.6% year over year. The consensus estimate for earnings implies year-over-year growth of 18.2%. The company has a trailing four-quarter earnings surprise of 12.21%, on average. Presently, Haemonetics carries a Zacks Rank of 2.
Price and Consensus: HAE