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5 Medical Product Stocks to Buy Amid Industry Recovery
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The Zacks Medical – Products industry continues to face supply-chain constraints, increased material costs and a shortage of workers. Although the companies have seen a sales recovery in 2023, the ongoing headwinds are hurting margins. Revenues are expected to grow from the demand recovery for surgeries and procedures, new products and expansion into new markets. The industry players are raising prices to cope with the higher costs. The lower demand for COVID-19 related products is also affecting the revenues negatively.
Industry participants like Stryker (SYK - Free Report) , Boston Scientific (BSX - Free Report) , Zimmer Biomet (ZBH - Free Report) , Insulet (PODD - Free Report) and Haemonetics (HAE - Free Report) have adapted to changing consumer preferences and are witnessing a rise in share price.
Industry Description
The industry includes companies providing medical products and cutting-edge technologies for healthcare services. These companies are primarily focused on research and development, and primarily cater to vital therapeutic areas like cardiovascular, nephrology and urology devices. The strengthening of the dollar and labor shortage are hurting sales. Supply-chain disruptions following lockdowns across several countries, notably China, in the first half of 2022 continue to persist, affecting the availability of certain materials used to develop medical-related products like semiconductor chips. Recent inflationary pressure and labor shortages weigh on the gross and operating margins of the industry players. The trend is likely to persist in the rest of 2023, albeit weaker. However, rising demand for medical procedures and cost-cutting initiatives are likely to drive performance.
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. Several companies have shown substantial prowess 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 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 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 #107, which places it in the top 43% 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 bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform 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 declined 8.3% compared the Zacks Medical sector’s fall of 8%. The S&P 500 has increased 14.8% 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 19.4X compared with the S&P 500’s 18.6X and the sector’s 22.9X.
Over the last five years, the industry has traded as high as 30X and as low as 18.9X, with the median being at 23.5X, as the charts show.
Price-to-Earnings Forward Twelve Months (F12M)
Price-to-Earnings Forward Twelve Months (F12M)
5 Promising Medical Product Stocks
Stryker 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, especially in Europe and emerging markets. Stryker is witnessing 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 second-quarter results, the company expects total revenue growth at a constant exchange rate (CER) of 9.5-10.5% for 2023. Adjusted EPS is now expected in the band of $10.25-$10.45, up from the prior guidance of $10.05-$10.25. 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 Kalamazoo, MI-based company, the Zacks Consensus Estimate for 2023 revenues is pegged at $20.23 billion. The consensus mark for earnings is pinned at $10.37 per share. The company delivered a trailing four-quarter average earnings surprise of 3.50%.
Price and Consensus: SYK
Boston Scientific: The company manufactures medical devices and products used in various interventional medical specialties worldwide. Its second-quarter 2023 adjusted earnings and revenues exceeded market expectations by decent margins. The company registered a strong year-over-year improvement in organic sales, indicating a solid rebound in the legacy business despite several macroeconomic issues. The 2023 guidance increases investors’ confidence, indicating that the company is well-poised to handle the industry-wise trend of currency headwinds and global inflationary pressure. However, rising operating expenses are putting pressure on the company’s gross margin.
Following the encouraging second-quarter results, Boston Scientific raised total revenue growth guidance to the range of 10.5-11.5% on a reported basis (up from the prior projection of 8.5-10.5%). Organic revenue growth is currently expected in the range of 10-11%. The company also raised its guidance for adjusted earnings from $1.96-$2.00 to $1.90-$1.96.
For this Natick, MA-based company, the Zacks Consensus Estimate for 2023 revenues suggest an improvement of 10.9%. The consensus estimate for earnings indicates a rise of 16.4%. It delivered a trailing four-quarter earnings surprise of 2.73%, on average. Presently, the company carries a Zacks Rank of 2.
Price and Consensus: BSX
Zimmer Biomet is a leading musculoskeletal healthcare company that designs, manufactures and markets orthopedic reconstructive products. The company ended the second quarter with better-than-expected earnings and revenues. Each of its geographic segments and product divisions recorded year-over-year sales growth at CER. The expansion in the company’s adjusted gross and operating margins is encouraging.
Despite the near-term pressure, Zimmer Biomet is putting efforts into 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 second-quarter results, the company expects revenues and adjusted earnings to grow 6.5-7% and 7.4-9.9%, respectively, year over year. Currently, the company carries a Zacks Rank #2.
For this Warsaw, IN-based company, the Zacks Consensus Estimate for 2023 revenues is pegged at $7.4 billion. The consensus mark for earnings is pinned at $7.51 per share. The company delivered a trailing four-quarter average earnings surprise of 4.47%.
Price and Consensus: ZBH
Insulet: The company is a leading developer, manufacturer and marketer of the Omnipod Insulin Management System. The Omnipod device comes equipped with the wireless and handheld Personal Diabetes Manager for pain-free automated cannula insertion and blood glucose meter integration. Insulet earns a huge share of revenues from the Omnipod System in the United States, Canada, Europe and Israel. The company’s performance benefited from record quarterly U.S. and Total Omnipod new customer starts during the first half of 2023. This was driven mainly by a strong start to the company’s U.S. full market release of the Omnipod 5 automated insulin delivery system.
However, the substantial fall in Drug Delivery sales is discouraging. Contraction in margins does not bode well. On a year-over-year basis, the company expects gross margin to be adversely impacted by higher costs associated with the U.S. manufacturing ramp, product line mix due to the ramp-up of Omnipod 5 and lower drug delivery revenues. Supply chain disruptions and inflationary pressure continue to challenge business operations. Following the second-quarter results, Insulet raised the total revenue growth guidance to 22-25% on a reported basis (up from the prior projection of 18-22%). Total Omnipod sales are likely to improve 25-28% in 2023.
For this Acton, MA-based company, the Zacks Consensus Estimate for 2023 revenues suggests an improvement of 24.5%. The consensus estimate for earnings indicates a rise of 2242.9%. It delivered a trailing four-quarter earnings surprise of 126.94%, on average. Presently, the company has a Zacks Rank #2.
Price and Consensus: PODD
Haemonetics provides blood management solutions to customers encompassing blood and plasma collectors, hospitals and health care providers globally. 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 witnessed strong growth in the Plasma franchise for quite some time. In the global plasma market, Haemonetics holds an approximate 80% equity. It is currently seeing 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 in 2023.
Following the robust fiscal first-quarter 2024 results, Haemonetics expects GAAP total revenues to grow in the range of 6-9% on a reported basis. Organic revenue growth is currently expected in the band of 7-10%. HAE anticipates adjusted earnings between $3.60 and $3.90 per share.
For this Boston, MA-based company, the Zacks Consensus Estimate for fiscal 2023 revenues indicates an improvement of 8.1% year over year. The consensus estimate for earnings implies year-over-year growth of 26.1%. The company delivered a trailing four-quarter earnings surprise of 19.39%, on average. Presently, Haemonetics carries a Zacks Rank of 2.
Price and Consensus: HAE
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5 Medical Product Stocks to Buy Amid Industry Recovery
The Zacks Medical – Products industry continues to face supply-chain constraints, increased material costs and a shortage of workers. Although the companies have seen a sales recovery in 2023, the ongoing headwinds are hurting margins. Revenues are expected to grow from the demand recovery for surgeries and procedures, new products and expansion into new markets. The industry players are raising prices to cope with the higher costs. The lower demand for COVID-19 related products is also affecting the revenues negatively.
Industry participants like Stryker (SYK - Free Report) , Boston Scientific (BSX - Free Report) , Zimmer Biomet (ZBH - Free Report) , Insulet (PODD - Free Report) and Haemonetics (HAE - Free Report) have adapted to changing consumer preferences and are witnessing a rise in share price.
Industry Description
The industry includes companies providing medical products and cutting-edge technologies for healthcare services. These companies are primarily focused on research and development, and primarily cater to vital therapeutic areas like cardiovascular, nephrology and urology devices. The strengthening of the dollar and labor shortage are hurting sales. Supply-chain disruptions following lockdowns across several countries, notably China, in the first half of 2022 continue to persist, affecting the availability of certain materials used to develop medical-related products like semiconductor chips. Recent inflationary pressure and labor shortages weigh on the gross and operating margins of the industry players. The trend is likely to persist in the rest of 2023, albeit weaker. However, rising demand for medical procedures and cost-cutting initiatives are likely to drive performance.
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. Several companies have shown substantial prowess 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 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 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 #107, which places it in the top 43% 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 bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform 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 declined 8.3% compared the Zacks Medical sector’s fall of 8%. The S&P 500 has increased 14.8% 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 19.4X compared with the S&P 500’s 18.6X and the sector’s 22.9X.
Over the last five years, the industry has traded as high as 30X and as low as 18.9X, with the median being at 23.5X, as the charts show.
Price-to-Earnings Forward Twelve Months (F12M)
Price-to-Earnings Forward Twelve Months (F12M)
5 Promising Medical Product Stocks
Stryker 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, especially in Europe and emerging markets. Stryker is witnessing 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 second-quarter results, the company expects total revenue growth at a constant exchange rate (CER) of 9.5-10.5% for 2023. Adjusted EPS is now expected in the band of $10.25-$10.45, up from the prior guidance of $10.05-$10.25. 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 Kalamazoo, MI-based company, the Zacks Consensus Estimate for 2023 revenues is pegged at $20.23 billion. The consensus mark for earnings is pinned at $10.37 per share. The company delivered a trailing four-quarter average earnings surprise of 3.50%.
Price and Consensus: SYK
Boston Scientific: The company manufactures medical devices and products used in various interventional medical specialties worldwide. Its second-quarter 2023 adjusted earnings and revenues exceeded market expectations by decent margins. The company registered a strong year-over-year improvement in organic sales, indicating a solid rebound in the legacy business despite several macroeconomic issues. The 2023 guidance increases investors’ confidence, indicating that the company is well-poised to handle the industry-wise trend of currency headwinds and global inflationary pressure. However, rising operating expenses are putting pressure on the company’s gross margin.
Following the encouraging second-quarter results, Boston Scientific raised total revenue growth guidance to the range of 10.5-11.5% on a reported basis (up from the prior projection of 8.5-10.5%). Organic revenue growth is currently expected in the range of 10-11%. The company also raised its guidance for adjusted earnings from $1.96-$2.00 to $1.90-$1.96.
For this Natick, MA-based company, the Zacks Consensus Estimate for 2023 revenues suggest an improvement of 10.9%. The consensus estimate for earnings indicates a rise of 16.4%. It delivered a trailing four-quarter earnings surprise of 2.73%, on average. Presently, the company carries a Zacks Rank of 2.
Price and Consensus: BSX
Zimmer Biomet is a leading musculoskeletal healthcare company that designs, manufactures and markets orthopedic reconstructive products. The company ended the second quarter with better-than-expected earnings and revenues. Each of its geographic segments and product divisions recorded year-over-year sales growth at CER. The expansion in the company’s adjusted gross and operating margins is encouraging.
Despite the near-term pressure, Zimmer Biomet is putting efforts into 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 second-quarter results, the company expects revenues and adjusted earnings to grow 6.5-7% and 7.4-9.9%, respectively, year over year. Currently, the company carries a Zacks Rank #2.
For this Warsaw, IN-based company, the Zacks Consensus Estimate for 2023 revenues is pegged at $7.4 billion. The consensus mark for earnings is pinned at $7.51 per share. The company delivered a trailing four-quarter average earnings surprise of 4.47%.
Price and Consensus: ZBH
Insulet: The company is a leading developer, manufacturer and marketer of the Omnipod Insulin Management System. The Omnipod device comes equipped with the wireless and handheld Personal Diabetes Manager for pain-free automated cannula insertion and blood glucose meter integration. Insulet earns a huge share of revenues from the Omnipod System in the United States, Canada, Europe and Israel. The company’s performance benefited from record quarterly U.S. and Total Omnipod new customer starts during the first half of 2023. This was driven mainly by a strong start to the company’s U.S. full market release of the Omnipod 5 automated insulin delivery system.
However, the substantial fall in Drug Delivery sales is discouraging. Contraction in margins does not bode well. On a year-over-year basis, the company expects gross margin to be adversely impacted by higher costs associated with the U.S. manufacturing ramp, product line mix due to the ramp-up of Omnipod 5 and lower drug delivery revenues. Supply chain disruptions and inflationary pressure continue to challenge business operations. Following the second-quarter results, Insulet raised the total revenue growth guidance to 22-25% on a reported basis (up from the prior projection of 18-22%). Total Omnipod sales are likely to improve 25-28% in 2023.
For this Acton, MA-based company, the Zacks Consensus Estimate for 2023 revenues suggests an improvement of 24.5%. The consensus estimate for earnings indicates a rise of 2242.9%. It delivered a trailing four-quarter earnings surprise of 126.94%, on average. Presently, the company has a Zacks Rank #2.
Price and Consensus: PODD
Haemonetics provides blood management solutions to customers encompassing blood and plasma collectors, hospitals and health care providers globally. 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 witnessed strong growth in the Plasma franchise for quite some time. In the global plasma market, Haemonetics holds an approximate 80% equity. It is currently seeing 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 in 2023.
Following the robust fiscal first-quarter 2024 results, Haemonetics expects GAAP total revenues to grow in the range of 6-9% on a reported basis. Organic revenue growth is currently expected in the band of 7-10%. HAE anticipates adjusted earnings between $3.60 and $3.90 per share.
For this Boston, MA-based company, the Zacks Consensus Estimate for fiscal 2023 revenues indicates an improvement of 8.1% year over year. The consensus estimate for earnings implies year-over-year growth of 26.1%. The company delivered a trailing four-quarter earnings surprise of 19.39%, on average. Presently, Haemonetics carries a Zacks Rank of 2.
Price and Consensus: HAE