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3 Medical Instruments Stocks to Buy as Industry Trends Improve
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The Medical Instruments industry witnessed a gradual transition toward remote healthcare and contactless services during the pandemic. With the crisis nearly over now, the key focus of medical device R&D is again shifting from COVID-related treatment options to point-of-care testing, heavy as well as minimally invasive implants, elective procedures, and so on and so forth.
In fact, since the beginning of 2023, this industry has been witnessing massive adoption of artificial intelligence (AI) and the Internet of Medical Things in the form of digital healthcare options in hospitals and other healthcare settings. Digital enhancement, while optimizing costs, proves to be better for clinical outcomes. However, deteriorating international trade, with global inflationary pressure leading to a tough situation related to raw material and labor cost as well as freight charges, has put the industry in a tight spot again. Further, staffing shortages and supply chain-related hazards are denting growth. Meanwhile, industry players like Hologic, Inc. (HOLX - Free Report) , Masimo Corporation (MASI - Free Report) and Veracyte, Inc. (VCYT - Free Report) have adapted well to changing consumer preferences and are still witnessing an uptrend in their stock prices.
Industry Description
The Zacks Medical - Instruments industry is highly fragmented, with participants engaged in research and development (R&D) in therapeutic areas. This FDA-regulated industry comprises an endless number of products, starting from transcatheter valves to orthopedic products to imaging equipment and robotics. Prior to the pandemic, the Medical Instruments space was advancing well in terms of R&D. Among the recent path-breaking inventions, bone growth stimulators, 3D mapping of CT scans, wireless brain sensors and human-brain pacemakers are worth mentioning. During the COVID-hit years, many non-COVID and non-emergency-line innovations were stuck or delayed. However, with the severity of the pandemic easing, the industry players are again more focused on strengthening their pipeline.
3 Trends Shaping the Future of the Medical Instruments Industry
M&A Trend Continues: The medical instruments space has been benefiting from the ongoing merger and acquisition (M&A) trend. It is a known fact that smaller and mid-sized industry players attempt to compete with the big shots through consolidation. The big players attempt to enter new markets through a niche product. According to an Evaluate MedTech report, in 2022, M&A in this sector represented just under $65 billion in deals. This trend significantly slowed down in 2023, thanks to the tremendously volatile global macroeconomic situation, which resulted in restrained venture capital investment. In the first half of 2023, M&A transactions totaled $13 billion, spanning just 42 deals. The Evaluate report stated that if this trend continued through the second half of the year, it would make the 2023 total the lowest in a decade. Per GlobalData’s Deals Database, as published in Medical Device Network, in the third quarter of 2023, this industry had 107 M&A deals initiated, with a total value of a mere $4 billion. Among the recently completed deals, Globus Medical closed the $3.1 billion deal to acquire spine technology company NuVasive. Also, Boston Scientific recently inked a $3.4 billion deal to acquire publicly traded medical technology company Axonics.
Business Trend Disruption: Considering the ongoing macroeconomic situation, the IMF came up with its October 2023 World Economic Outlook Update. Per the baseline forecast, growth is expected to decelerate from 3.5% in 2022 to 3% in 2023 before settling at 2.9% in 2024. IMF expects developed economies to see an especially pronounced slowdown in growth, from 2.6% in 2022 to 1.5% in 2023. IMF specifically noted that global headline inflation in the baseline is going to fall from 8.7% in 2022 to 6.9% in 2023 due to a tighter monetary policy aided by lower international commodity prices. However, underlying (core) inflation is likely to decline more slowly. Inflation’s return to target is unlikely before 2025 in most cases. Per the report, following a strong initial rebound from the pandemic-led market disruption, the pace of recovery has moderated. Several forces that are holding back the recovery include Russia’s war in Ukraine and increasing geoeconomic fragmentation. Other major factors denting growth are the effects of monetary policy tightening to reduce inflation and the withdrawal of fiscal support amid high debt. Overall, Medical Instruments industry players are expected to collectively report a year-over-year decline in earnings due to logistical challenges and higher unit costs.
Digital Revolution: With an increase in the adoption of digital platforms within the medical device space, robotic surgeries, big-data analytics, bioprinting, 3D printing, electronic health records, predictive analytics, real-time alerting and revenue cycle management services are gaining prominence in the United States. An October 2023 report of Precedence Research suggests that the global digital health market size is anticipated to reach around $939.54 billion by 2032, up from $262.63 billion in 2022 at a CAGR of 13.1%. Various other reports suggest that companies that adopted AI witnessed a 50% reduction in treatment costs. Telemedicine stocks received an impressive response when, in 2021, the Centers for Disease Control and Prevention asked healthcare service communities to broaden the use of telemedicine.
Zacks Industry Rank Indicates Improving Prospects
The Zacks Medical Instruments industry’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates improving near-term prospects. The industry, housed within the broader Zacks Medical sector, currently carries a Zacks Industry Rank #112, which places it in the top 45% of more than 250 Zacks industries. 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.
We will present a few stocks that have the potential to outperform the market based on a strong earnings outlook. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Underperforms S&P 500, Outperforms Sector
The industry has underperformed the Zacks S&P 500 composite but outperformed its sector in the past year.
The industry has risen 1.4% compared with the broader sector’s rise of 0.1%. The S&P 500 has risen 20.9% in a year.
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 33.20X compared with the broader industry’s 22.86X and the S&P 500’s 20.20X.
Over the past five years, the industry has traded as high as 41.91X, as low as 26.89X and at the median of 33.11X, as the charts show below.
Price-to-Earnings Forward Twelve Months (F12M)
Price-to-Earnings Forward Twelve Months (F12M)
3 Stocks to Buy Right Now
Masimo: Irvine, CA-based Masimo develops, manufactures and markets a family of non-invasive monitoring systems. Masimo’s healthcare products and patient monitoring solutions generally incorporate a monitor or circuit board, proprietary single-patient use or reusable sensors, software and cables. The company primarily sells its healthcare products to hospitals, emergency medical service providers, home care providers, physician offices, veterinarians, long-term care facilities and consumers through its direct sales force, distributors and original equipment manufacturer (OEM) partners.
The Zacks Consensus Estimate for Masimo’s 2024 sales is pegged at $2.11 billion, indicating a 3.3% rise from 2023. The same for MASI’s adjusted earnings is pegged at $3.52 per share, a 0.9% projected improvement from 2023. Masimo carries a Zacks Rank #1 (Strong Buy).
Veracyte: Headquartered in San Francisco, CA, Veracyte is a global diagnostics company that provides clinicians valuable insights to diagnose and treat cancer. Veracyte’s comprehensive Afirma solution, consisting of the Afirma GSC (Genomic Sequencing Classifier) and the Afirma Xpression Atlas, efficiently addresses the complex landscape in thyroid nodule diagnosis. The combined offering aims to provide physicians with clinically actionable results from a single fine needle aspiration or FNA biopsy.
The consensus estimate for this Zacks Rank #1 company’s 2024 sales is pegged at $396.9 million, indicating a 10.8% rise year over year. The consensus mark for Veracyte’s 2024 loss is pegged at 15 cents, indicating an improvement of 78% from the year-ago period reported figure.
Price and Consensus: VCYT
Hologic: Headquartered in Bedford, MA, Hologic develops, manufactures and supplies diagnostics, medical imaging systems and surgical products, which cater to the healthcare needs of women. Lately, Hologic’s Molecular Diagnostics business has been registering strong growth driven by a combination of newer assays like BV, CV/TV and contributions from Amgen and HSV, as well as strong growth from the longstanding women's health menu.
The consensus estimate for this Zacks Rank #2 (Buy) company’s fiscal 2025 sales is pegged at $4.19 billion, indicating a 5.1% rise year over year. The consensus mark for Hologic’s fiscal 2025 EPS is pegged at $4.32, indicating an increase of 8.3% from the year-ago period reported figure.
Price and Consensus: HOLX
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3 Medical Instruments Stocks to Buy as Industry Trends Improve
The Medical Instruments industry witnessed a gradual transition toward remote healthcare and contactless services during the pandemic. With the crisis nearly over now, the key focus of medical device R&D is again shifting from COVID-related treatment options to point-of-care testing, heavy as well as minimally invasive implants, elective procedures, and so on and so forth.
In fact, since the beginning of 2023, this industry has been witnessing massive adoption of artificial intelligence (AI) and the Internet of Medical Things in the form of digital healthcare options in hospitals and other healthcare settings. Digital enhancement, while optimizing costs, proves to be better for clinical outcomes. However, deteriorating international trade, with global inflationary pressure leading to a tough situation related to raw material and labor cost as well as freight charges, has put the industry in a tight spot again. Further, staffing shortages and supply chain-related hazards are denting growth. Meanwhile, industry players like Hologic, Inc. (HOLX - Free Report) , Masimo Corporation (MASI - Free Report) and Veracyte, Inc. (VCYT - Free Report) have adapted well to changing consumer preferences and are still witnessing an uptrend in their stock prices.
Industry Description
The Zacks Medical - Instruments industry is highly fragmented, with participants engaged in research and development (R&D) in therapeutic areas. This FDA-regulated industry comprises an endless number of products, starting from transcatheter valves to orthopedic products to imaging equipment and robotics. Prior to the pandemic, the Medical Instruments space was advancing well in terms of R&D. Among the recent path-breaking inventions, bone growth stimulators, 3D mapping of CT scans, wireless brain sensors and human-brain pacemakers are worth mentioning. During the COVID-hit years, many non-COVID and non-emergency-line innovations were stuck or delayed. However, with the severity of the pandemic easing, the industry players are again more focused on strengthening their pipeline.
3 Trends Shaping the Future of the Medical Instruments Industry
M&A Trend Continues: The medical instruments space has been benefiting from the ongoing merger and acquisition (M&A) trend. It is a known fact that smaller and mid-sized industry players attempt to compete with the big shots through consolidation. The big players attempt to enter new markets through a niche product. According to an Evaluate MedTech report, in 2022, M&A in this sector represented just under $65 billion in deals. This trend significantly slowed down in 2023, thanks to the tremendously volatile global macroeconomic situation, which resulted in restrained venture capital investment. In the first half of 2023, M&A transactions totaled $13 billion, spanning just 42 deals. The Evaluate report stated that if this trend continued through the second half of the year, it would make the 2023 total the lowest in a decade. Per GlobalData’s Deals Database, as published in Medical Device Network, in the third quarter of 2023, this industry had 107 M&A deals initiated, with a total value of a mere $4 billion. Among the recently completed deals, Globus Medical closed the $3.1 billion deal to acquire spine technology company NuVasive. Also, Boston Scientific recently inked a $3.4 billion deal to acquire publicly traded medical technology company Axonics.
Business Trend Disruption: Considering the ongoing macroeconomic situation, the IMF came up with its October 2023 World Economic Outlook Update. Per the baseline forecast, growth is expected to decelerate from 3.5% in 2022 to 3% in 2023 before settling at 2.9% in 2024. IMF expects developed economies to see an especially pronounced slowdown in growth, from 2.6% in 2022 to 1.5% in 2023. IMF specifically noted that global headline inflation in the baseline is going to fall from 8.7% in 2022 to 6.9% in 2023 due to a tighter monetary policy aided by lower international commodity prices. However, underlying (core) inflation is likely to decline more slowly. Inflation’s return to target is unlikely before 2025 in most cases. Per the report, following a strong initial rebound from the pandemic-led market disruption, the pace of recovery has moderated. Several forces that are holding back the recovery include Russia’s war in Ukraine and increasing geoeconomic fragmentation. Other major factors denting growth are the effects of monetary policy tightening to reduce inflation and the withdrawal of fiscal support amid high debt. Overall, Medical Instruments industry players are expected to collectively report a year-over-year decline in earnings due to logistical challenges and higher unit costs.
Digital Revolution: With an increase in the adoption of digital platforms within the medical device space, robotic surgeries, big-data analytics, bioprinting, 3D printing, electronic health records, predictive analytics, real-time alerting and revenue cycle management services are gaining prominence in the United States. An October 2023 report of Precedence Research suggests that the global digital health market size is anticipated to reach around $939.54 billion by 2032, up from $262.63 billion in 2022 at a CAGR of 13.1%. Various other reports suggest that companies that adopted AI witnessed a 50% reduction in treatment costs. Telemedicine stocks received an impressive response when, in 2021, the Centers for Disease Control and Prevention asked healthcare service communities to broaden the use of telemedicine.
Zacks Industry Rank Indicates Improving Prospects
The Zacks Medical Instruments industry’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates improving near-term prospects. The industry, housed within the broader Zacks Medical sector, currently carries a Zacks Industry Rank #112, which places it in the top 45% of more than 250 Zacks industries. 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.
We will present a few stocks that have the potential to outperform the market based on a strong earnings outlook. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Underperforms S&P 500, Outperforms Sector
The industry has underperformed the Zacks S&P 500 composite but outperformed its sector in the past year.
The industry has risen 1.4% compared with the broader sector’s rise of 0.1%. The S&P 500 has risen 20.9% in a year.
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 33.20X compared with the broader industry’s 22.86X and the S&P 500’s 20.20X.
Over the past five years, the industry has traded as high as 41.91X, as low as 26.89X and at the median of 33.11X, as the charts show below.
Price-to-Earnings Forward Twelve Months (F12M)
Price-to-Earnings Forward Twelve Months (F12M)
3 Stocks to Buy Right Now
Masimo: Irvine, CA-based Masimo develops, manufactures and markets a family of non-invasive monitoring systems. Masimo’s healthcare products and patient monitoring solutions generally incorporate a monitor or circuit board, proprietary single-patient use or reusable sensors, software and cables. The company primarily sells its healthcare products to hospitals, emergency medical service providers, home care providers, physician offices, veterinarians, long-term care facilities and consumers through its direct sales force, distributors and original equipment manufacturer (OEM) partners.
The Zacks Consensus Estimate for Masimo’s 2024 sales is pegged at $2.11 billion, indicating a 3.3% rise from 2023. The same for MASI’s adjusted earnings is pegged at $3.52 per share, a 0.9% projected improvement from 2023. Masimo carries a Zacks Rank #1 (Strong Buy).
You can see the complete list of today's Zacks #1 Rank stocks here.
Price and Consensus: MASI
Veracyte: Headquartered in San Francisco, CA, Veracyte is a global diagnostics company that provides clinicians valuable insights to diagnose and treat cancer. Veracyte’s comprehensive Afirma solution, consisting of the Afirma GSC (Genomic Sequencing Classifier) and the Afirma Xpression Atlas, efficiently addresses the complex landscape in thyroid nodule diagnosis. The combined offering aims to provide physicians with clinically actionable results from a single fine needle aspiration or FNA biopsy.
The consensus estimate for this Zacks Rank #1 company’s 2024 sales is pegged at $396.9 million, indicating a 10.8% rise year over year. The consensus mark for Veracyte’s 2024 loss is pegged at 15 cents, indicating an improvement of 78% from the year-ago period reported figure.
Price and Consensus: VCYT
Hologic: Headquartered in Bedford, MA, Hologic develops, manufactures and supplies diagnostics, medical imaging systems and surgical products, which cater to the healthcare needs of women. Lately, Hologic’s Molecular Diagnostics business has been registering strong growth driven by a combination of newer assays like BV, CV/TV and contributions from Amgen and HSV, as well as strong growth from the longstanding women's health menu.
The consensus estimate for this Zacks Rank #2 (Buy) company’s fiscal 2025 sales is pegged at $4.19 billion, indicating a 5.1% rise year over year. The consensus mark for Hologic’s fiscal 2025 EPS is pegged at $4.32, indicating an increase of 8.3% from the year-ago period reported figure.
Price and Consensus: HOLX