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5 Medical Product Stocks to Buy Amid Industry Challenges
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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 hurt margins. The lower demand for COVID-19-related products is having a negative impact on revenues. The budgetary constraints in U.S. hospitals and a soft Chinese market are impeding revenue growth. Revenues are expected to grow from the recovery in demand for surgeries and procedures, new products and expansion into new markets. An earlier-than-expected demand for respiratory products is also boosting sales. The industry players are raising prices to cope with the higher costs.
Industry participants like Stryker (SYK - Free Report) , ResMed (RMD - Free Report) , Zimmer Biomet (ZBH - Free Report) , Insulet (PODD - Free Report) and Lantheus (LNTH - Free Report) have adapted to changing consumer preferences, and the majority of them are witnessing a rise in share price. These companies also carry a favorable Zacks Rank.
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, 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 industry players’ gross and operating margins. The trend is likely to persist in 2024, 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 in facilitating 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 has 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. Diagnostic kit-makers 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 the government’s 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 #89, which places it in the top 35% 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 risen 5.8% compared with the Zacks Medical sector’s growth of 8%. The S&P 500 has increased 27.7% 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 21.5X compared with the S&P 500’s 21.4X and the sector’s 23.4X.
Over the last five years, the industry has traded as high as 29.8X and as low as 17.1X, with the median being at 20.4X, as the charts show.
Price-to-Earnings Forward Twelve Months (F12M)
Price-to-Earnings Forward Twelve Months (F12M)
5 Promising Medical Product Stocks
Lantheus is a radiopharmaceutical-focused company, committed to enabling clinicians to Find, Fight and Follow disease to deliver better patient outcomes. Its commercial products are used by oncologists, urologists, nuclear medicine physicians, cardiologists, sonographers, technologists, radiologists and internal medicine physicians working in a variety of clinical settings. The company produces and markets its products, dealing primarily with hospitals, independent diagnostic testing facilities, government facilities and radiopharmacies, among others.
Lantheus’ leadership in the radiopharmaceuticals market, with PYLARIFY dominating PSMA PET imaging for prostate cancer, looks promising. Regulatory advancements, like the Centers for Medicare and Medicaid Services’ proposed changes for diagnostic radiopharmaceutical payments, could further influence the sector. Lantheus is expanding its pipeline with promising assets like PNT2002 and PNT2003 alongside strategic collaborations to enhance its portfolio.
However, Lantheus is facing macroeconomic uncertainties and inflationary pressures raise concerns. Its dependence upon third parties and Mo-99 is also worrisome. Risky commercialization programs and reimbursement headwinds are other issues faced by Lantheus. During the fourth-quarter earnings call, LNTH stated that it expects full-year revenues in the range of $1.41-$1.445 billion and adjusted EPS in the band of $6.50-$6.70.
For this Billerica, MA-based company, the Zacks Consensus Estimate for 2024 revenues implies an improvement of 10.3% year over year. The consensus estimate for earnings indicates a rise of 5.6%. Lantheus delivered a trailing four-quarter average earnings surprise of 14.84%. Presently, the company sports a Zacks Rank #1.
Price and Consensus: LNTH
Stryker 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.
Stryker’s prospects in 2024 seem promising on the back of strong customer demand for its existing products as well as new launches. The company witnessed strong performance across its segments in the United States. Strong International sales also buoy optimism. The momentum is expected to continue in 2024 on the back of ongoing procedural recovery and a strong order book for capital equipment. SYK’s guidance for earnings and revenues in 2024 appears encouraging.
However, inflationary pressure and supply-chain challenges continue to plague Stryker. On its fourth-quarter earnings call, the company stated that it expects unfavorable currency movement to hurt 2024 top-line growth in the first half of the year and EPS by 5-10 cents. Currently, SYK 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 2024 revenues is pegged at $22.01 billion. The consensus mark for earnings is pinned at $11.86 per share. The company delivered a trailing four-quarter average earnings surprise of 5.1%.
Price and Consensus: SYK
ResMed holds a major position as designer, manufacturer, as well as a distributor in the worldwide market for generators, masks, and related accessories for the treatment of sleep-disordered breathing (SDB) and other respiratory disorders. SDB includes obstructive sleep apnea and other respiratory disorders that occur during sleep.
ResMed benefits from the global supply of its cloud-connected platforms, AirSense10 and AirSense11. The strong uptake of the myAir app with Air 11 is likely to drive higher adherence to therapy in patients. The company continues to see strong growth in the U.S. mask and accessories business, where resupply programs are powered by a digital health ecosystem, including AirView for physicians, Brightree for home care medical equipment providers and myAir for patients. The MEDIFOX DAN business in Germany contributes to the robust organic growth of the SaaS business, raising optimism.
However, ResMed has been witnessing increased operating expenses over the past few quarters. A balance sheet with a high debt burden is worrisome.
For this San Diego, CA-based company, the Zacks Consensus Estimate for fiscal 2024 revenues indicates a year-over-year improvement of 10%. The consensus estimate for earnings indicates growth of 15.7%. It delivered a trailing four-quarter earnings surprise of 1.83%, on average. Presently, the company carries a Zacks Rank of 2.
Price and Consensus: RMD
Zimmer Biomet 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. With operations in over 25 countries, Zimmer markets products in more than 100 countries.
ZBH is strategically expanding its global presence to address the huge demand in the musculoskeletal space. This market is growing rapidly due to favorable demographics and growing utilization of musculoskeletal healthcare in emerging markets and under-penetrated developed markets. Further, through the months of 2023, the company witnessed strong procedure recovery, aided by no impact of COVID-19 and staffing challenges. The recent implementation of four meaningful pillars inside the Knee business is expected to drive pricing stability, mix benefit and competitive conversions. Currently, the company carries a Zacks Rank #2.
However, a difficult macroecnomic situation leading to mounting expenses is putting pressure on the operating margin. Pricing pressure and a tough competitive landscape impede growth. Rising interest rates have put the dental treatment space (which is highly elective) in a tight spot. Following strong fourth-quarter results, the company expects total revenue growth of 4.5-5.5% on a reported basis for 2024. The company currently expects foreign exchange to have an adverse impact of 0.5% on revenues.
For this Warsaw, IN-based company, the Zacks Consensus Estimate for 2024 revenues is pegged at $7.76 billion. The consensus mark for earnings is pinned at $8.07 per share. The company delivered a trailing four-quarter average earnings surprise of 4.99%.
Price and Consensus: ZBH
Insulet is a leading developer, manufacturer and marketer of the Omnipod Insulin Management System. The system is equipped with a self-adhesive, small and lightweight disposable tubeless Omnipod device along with the wireless and handheld Personal Diabetes Manager. It is worn on the body for approximately three days at a time and allows virtually pain-free automated cannula insertion and blood glucose meter integration.
Insulet has been progressing well with its four-pillar strategy that targets focused market expansion and innovation. The company has been making progress with respect to its development roadmap of the Omnipod 5 system. The international rollout of the device continues successfully. In 2023, the company commercially launched Omnipod 5 in the United Kingdom and Germany.
Further, Insulet registered continued strong adoption of Omnipod DASH in its international markets. In terms of innovation, in February 2024, Insulet received a CE mark for the added compatibility of Omnipod 5 with the Abbott FreeStyle Libre 2 Plus sensor. Currently, the company carries a Zacks Rank #2.
However, macroeconomic concerns leading to mounting expenses do not bode well. Insulet’s heavy reliance on the Omnipod System and a tough competitive landscape add to the woes. During the fourth-quarter earnings call, Insulet stated that it expects revenue growth in the range of 12-17%. Insulet’s total Omnipod revenue growth is expected between 13% and 18%. The company expects Drug Delivery revenues to decline 50-60%.
For this Acton, MA-based company, the Zacks Consensus Estimate for 2024 revenues implies an improvement of 15.7% year over year. The consensus estimate for earnings indicates growth of 12%. PODD delivered a trailing four-quarter average earnings surprise of 100.09%. Presently, the company has a Zacks Rank #2.
Price and Consensus: PODD
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5 Medical Product Stocks to Buy Amid Industry Challenges
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 hurt margins. The lower demand for COVID-19-related products is having a negative impact on revenues. The budgetary constraints in U.S. hospitals and a soft Chinese market are impeding revenue growth. Revenues are expected to grow from the recovery in demand for surgeries and procedures, new products and expansion into new markets. An earlier-than-expected demand for respiratory products is also boosting sales. The industry players are raising prices to cope with the higher costs.
Industry participants like Stryker (SYK - Free Report) , ResMed (RMD - Free Report) , Zimmer Biomet (ZBH - Free Report) , Insulet (PODD - Free Report) and Lantheus (LNTH - Free Report) have adapted to changing consumer preferences, and the majority of them are witnessing a rise in share price. These companies also carry a favorable Zacks Rank.
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, 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 industry players’ gross and operating margins. The trend is likely to persist in 2024, 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 in facilitating 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 has 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. Diagnostic kit-makers 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 the government’s 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 #89, which places it in the top 35% 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 risen 5.8% compared with the Zacks Medical sector’s growth of 8%. The S&P 500 has increased 27.7% 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 21.5X compared with the S&P 500’s 21.4X and the sector’s 23.4X.
Over the last five years, the industry has traded as high as 29.8X and as low as 17.1X, with the median being at 20.4X, as the charts show.
Price-to-Earnings Forward Twelve Months (F12M)
Price-to-Earnings Forward Twelve Months (F12M)
5 Promising Medical Product Stocks
Lantheus is a radiopharmaceutical-focused company, committed to enabling clinicians to Find, Fight and Follow disease to deliver better patient outcomes. Its commercial products are used by oncologists, urologists, nuclear medicine physicians, cardiologists, sonographers, technologists, radiologists and internal medicine physicians working in a variety of clinical settings. The company produces and markets its products, dealing primarily with hospitals, independent diagnostic testing facilities, government facilities and radiopharmacies, among others.
Lantheus’ leadership in the radiopharmaceuticals market, with PYLARIFY dominating PSMA PET imaging for prostate cancer, looks promising. Regulatory advancements, like the Centers for Medicare and Medicaid Services’ proposed changes for diagnostic radiopharmaceutical payments, could further influence the sector. Lantheus is expanding its pipeline with promising assets like PNT2002 and PNT2003 alongside strategic collaborations to enhance its portfolio.
However, Lantheus is facing macroeconomic uncertainties and inflationary pressures raise concerns. Its dependence upon third parties and Mo-99 is also worrisome. Risky commercialization programs and reimbursement headwinds are other issues faced by Lantheus. During the fourth-quarter earnings call, LNTH stated that it expects full-year revenues in the range of $1.41-$1.445 billion and adjusted EPS in the band of $6.50-$6.70.
For this Billerica, MA-based company, the Zacks Consensus Estimate for 2024 revenues implies an improvement of 10.3% year over year. The consensus estimate for earnings indicates a rise of 5.6%. Lantheus delivered a trailing four-quarter average earnings surprise of 14.84%. Presently, the company sports a Zacks Rank #1.
Price and Consensus: LNTH
Stryker 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.
Stryker’s prospects in 2024 seem promising on the back of strong customer demand for its existing products as well as new launches. The company witnessed strong performance across its segments in the United States. Strong International sales also buoy optimism. The momentum is expected to continue in 2024 on the back of ongoing procedural recovery and a strong order book for capital equipment. SYK’s guidance for earnings and revenues in 2024 appears encouraging.
However, inflationary pressure and supply-chain challenges continue to plague Stryker. On its fourth-quarter earnings call, the company stated that it expects unfavorable currency movement to hurt 2024 top-line growth in the first half of the year and EPS by 5-10 cents. Currently, SYK 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 2024 revenues is pegged at $22.01 billion. The consensus mark for earnings is pinned at $11.86 per share. The company delivered a trailing four-quarter average earnings surprise of 5.1%.
Price and Consensus: SYK
ResMed holds a major position as designer, manufacturer, as well as a distributor in the worldwide market for generators, masks, and related accessories for the treatment of sleep-disordered breathing (SDB) and other respiratory disorders. SDB includes obstructive sleep apnea and other respiratory disorders that occur during sleep.
ResMed benefits from the global supply of its cloud-connected platforms, AirSense10 and AirSense11. The strong uptake of the myAir app with Air 11 is likely to drive higher adherence to therapy in patients. The company continues to see strong growth in the U.S. mask and accessories business, where resupply programs are powered by a digital health ecosystem, including AirView for physicians, Brightree for home care medical equipment providers and myAir for patients. The MEDIFOX DAN business in Germany contributes to the robust organic growth of the SaaS business, raising optimism.
However, ResMed has been witnessing increased operating expenses over the past few quarters. A balance sheet with a high debt burden is worrisome.
For this San Diego, CA-based company, the Zacks Consensus Estimate for fiscal 2024 revenues indicates a year-over-year improvement of 10%. The consensus estimate for earnings indicates growth of 15.7%. It delivered a trailing four-quarter earnings surprise of 1.83%, on average. Presently, the company carries a Zacks Rank of 2.
Price and Consensus: RMD
Zimmer Biomet 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. With operations in over 25 countries, Zimmer markets products in more than 100 countries.
ZBH is strategically expanding its global presence to address the huge demand in the musculoskeletal space. This market is growing rapidly due to favorable demographics and growing utilization of musculoskeletal healthcare in emerging markets and under-penetrated developed markets. Further, through the months of 2023, the company witnessed strong procedure recovery, aided by no impact of COVID-19 and staffing challenges. The recent implementation of four meaningful pillars inside the Knee business is expected to drive pricing stability, mix benefit and competitive conversions. Currently, the company carries a Zacks Rank #2.
However, a difficult macroecnomic situation leading to mounting expenses is putting pressure on the operating margin. Pricing pressure and a tough competitive landscape impede growth. Rising interest rates have put the dental treatment space (which is highly elective) in a tight spot. Following strong fourth-quarter results, the company expects total revenue growth of 4.5-5.5% on a reported basis for 2024. The company currently expects foreign exchange to have an adverse impact of 0.5% on revenues.
For this Warsaw, IN-based company, the Zacks Consensus Estimate for 2024 revenues is pegged at $7.76 billion. The consensus mark for earnings is pinned at $8.07 per share. The company delivered a trailing four-quarter average earnings surprise of 4.99%.
Price and Consensus: ZBH
Insulet is a leading developer, manufacturer and marketer of the Omnipod Insulin Management System. The system is equipped with a self-adhesive, small and lightweight disposable tubeless Omnipod device along with the wireless and handheld Personal Diabetes Manager. It is worn on the body for approximately three days at a time and allows virtually pain-free automated cannula insertion and blood glucose meter integration.
Insulet has been progressing well with its four-pillar strategy that targets focused market expansion and innovation. The company has been making progress with respect to its development roadmap of the Omnipod 5 system. The international rollout of the device continues successfully. In 2023, the company commercially launched Omnipod 5 in the United Kingdom and Germany.
Further, Insulet registered continued strong adoption of Omnipod DASH in its international markets. In terms of innovation, in February 2024, Insulet received a CE mark for the added compatibility of Omnipod 5 with the Abbott FreeStyle Libre 2 Plus sensor. Currently, the company carries a Zacks Rank #2.
However, macroeconomic concerns leading to mounting expenses do not bode well. Insulet’s heavy reliance on the Omnipod System and a tough competitive landscape add to the woes. During the fourth-quarter earnings call, Insulet stated that it expects revenue growth in the range of 12-17%. Insulet’s total Omnipod revenue growth is expected between 13% and 18%. The company expects Drug Delivery revenues to decline 50-60%.
For this Acton, MA-based company, the Zacks Consensus Estimate for 2024 revenues implies an improvement of 15.7% year over year. The consensus estimate for earnings indicates growth of 12%. PODD delivered a trailing four-quarter average earnings surprise of 100.09%. Presently, the company has a Zacks Rank #2.
Price and Consensus: PODD