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3 Medical Instruments Stocks to Buy Amid Improving Industry Trends
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The Medical Instruments industry is once again in a transformative phase. With the pandemic-led crisis over now, the industry is now seeing rapid adoption of generative Artificial Intelligence (genAI) and digital therapeutics, which, according to market watchers, is expected to take the healthcare industry by storm.
In fact, since the beginning of 2023, the industry has been witnessing the adoption of 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, the deteriorating geopolitical situation, supply chain bottlenecks leading to a tough situation related to raw material and labor costs and freight charges, as well as healthcare staffing shortages, have put the industry in a tight spot again. Meanwhile, industry players like Edwards Lifesciences (EW - Free Report) , DexCom, Inc. (DXCM - Free Report) and STERIS (STE - 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
Digital Revolution: Since 2023, there has been an increase in the adoption of genAI within the medical instruments space. This is likely to rapidly pave the way for advanced and efficient operational management within the industry. GenAI, while analyzing vast and complex genetic and molecular data, is expected to help healthcare reach new heights in terms of predictive treatment options and smart hospital systems. Going by an AlphaSense report, in 2024, more companies are likely to experiment with genAI in new ways, such as the use of voice prompts. They will need to acquire new capabilities and talent to reap the full benefits of this technology. Early adopters will have a competitive advantage over those who choose to resist change. 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%.
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. However, M&A activity surged 124% in the fourth quarter of 2023 from $4.2 billion in the third quarter. Yet, this fell 73% year over year. In terms of deal volume, it increased 18% sequentially in the fourth quarter but was 10% lower than the year-ago period (data by Medical Device Network). Boston Scientific recently inked a $3.4 billion deal to acquire publicly traded medical technology company Axonics. In April, J&J proposed to buy Shockwave Medical for approximately $13.1 billion.
Business Trend Disruption: Per IMF’s January 2024 World Economic Outlook Update, economic growth is projected to be 3.1% in 2024 and 3.2% in 2025, which are still below the historical (2000–19) average of 3.8%. This is primarily because of elevated central bank policy rates to fight inflation, a withdrawal of fiscal support amid high debt weighing on economic activity and low underlying productivity growth. The policymakers are also concerned about the new commodity price spikes from geopolitical shocks, including continued attacks in the Red Sea. Further, according to them, supply disruptions or more persistent underlying inflation could prolong tight monetary conditions. Other major factors denting growth within the medical instruments space are worsening property sector woes in China or, elsewhere, a disruptive turn to tax hikes and spending cuts.
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 #99, which places it in the top 39% 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 3.8% against the broader sector’s decline of 2.2%. The S&P 500 has risen 24.1% 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 33.84X compared with the broader industry’s 22.33X and the S&P 500’s 20.88X.
Over the past five years, the industry has traded as high as 41.80X, as low as 26.79X and at the median of 33.29X, 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
Edwards Lifesciences: Irvine, CA-based Edwards Lifesciences deals in products and technologies aimed at treating advanced cardiovascular diseases, especially structural heart disease in critically ill patients. Edwards Lifesciences expects to maintain its leadership position in the global Transcatheter Aortic Valve Replacement (TAVR) market through increased focus on expanding patient access by actively leveraging current valve platforms for additional indications, by developing next-generation valve platforms, and maintaining trusted relationships with clinicians, payers and regulators.
The Zacks Consensus Estimate for Edwards Lifesciences’s 2024 sales is pegged at $6.52 billion, indicating an 8.6% rise from 2023. The same for EW’s adjusted earnings is pegged at $2.76 per share, a 9.9% projected improvement from 2023. Edwards Lifesciences carries a Zacks Rank #2 (Buy) currently.
DexCom: San Diego, CA-based DexCom is a medical device company focused on the design, development and commercialization of continuous glucose monitoring systems (CGM). These are for ambulatory use by people with diabetes and by healthcare providers for the treatment of diabetic and non-diabetic patients. DexCom continues to expand its product portfolio with the addition of new products like DexCom One and G7 Sensor. Sales of these products reflect strong demand since their launch late last year.
The consensus estimate for this Zacks Rank #2 company’s 2024 sales is pegged at $4.32 billion, indicating a 19.2% rise from 2023. The consensus mark for DexCom’s 2024 EPS is pegged at $1.76, indicating an improvement of 15.8% from the year-ago period reported figure.
Price and Consensus: DXCM
STERIS: Ohio-headquartered STERIS develops, manufactures and markets infection prevention, decontamination, microbial reduction, and surgical and gastrointestinal support products and services. The bulk of STERIS’ revenues are obtained from the healthcare and pharmaceutical industries. Growth in these industries is primarily driven by the aging of the global population, as an increasing number of individuals are entering their prime healthcare consumption years.
The consensus estimate for this Zacks Rank #2 company’s fiscal 2025 sales is pegged at $5.84 billion, indicating a 6.7% rise from fiscal 2024. The consensus mark for STERIS’s fiscal 2025 EPS is pegged at $9.52, indicating an increase of 9.9% from the year-ago period reported figure.
Price and Consensus: STE
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3 Medical Instruments Stocks to Buy Amid Improving Industry Trends
The Medical Instruments industry is once again in a transformative phase. With the pandemic-led crisis over now, the industry is now seeing rapid adoption of generative Artificial Intelligence (genAI) and digital therapeutics, which, according to market watchers, is expected to take the healthcare industry by storm.
In fact, since the beginning of 2023, the industry has been witnessing the adoption of 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, the deteriorating geopolitical situation, supply chain bottlenecks leading to a tough situation related to raw material and labor costs and freight charges, as well as healthcare staffing shortages, have put the industry in a tight spot again. Meanwhile, industry players like Edwards Lifesciences (EW - Free Report) , DexCom, Inc. (DXCM - Free Report) and STERIS (STE - 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
Digital Revolution: Since 2023, there has been an increase in the adoption of genAI within the medical instruments space. This is likely to rapidly pave the way for advanced and efficient operational management within the industry. GenAI, while analyzing vast and complex genetic and molecular data, is expected to help healthcare reach new heights in terms of predictive treatment options and smart hospital systems. Going by an AlphaSense report, in 2024, more companies are likely to experiment with genAI in new ways, such as the use of voice prompts. They will need to acquire new capabilities and talent to reap the full benefits of this technology. Early adopters will have a competitive advantage over those who choose to resist change. 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%.
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. However, M&A activity surged 124% in the fourth quarter of 2023 from $4.2 billion in the third quarter. Yet, this fell 73% year over year. In terms of deal volume, it increased 18% sequentially in the fourth quarter but was 10% lower than the year-ago period (data by Medical Device Network). Boston Scientific recently inked a $3.4 billion deal to acquire publicly traded medical technology company Axonics. In April, J&J proposed to buy Shockwave Medical for approximately $13.1 billion.
Business Trend Disruption: Per IMF’s January 2024 World Economic Outlook Update, economic growth is projected to be 3.1% in 2024 and 3.2% in 2025, which are still below the historical (2000–19) average of 3.8%. This is primarily because of elevated central bank policy rates to fight inflation, a withdrawal of fiscal support amid high debt weighing on economic activity and low underlying productivity growth. The policymakers are also concerned about the new commodity price spikes from geopolitical shocks, including continued attacks in the Red Sea. Further, according to them, supply disruptions or more persistent underlying inflation could prolong tight monetary conditions. Other major factors denting growth within the medical instruments space are worsening property sector woes in China or, elsewhere, a disruptive turn to tax hikes and spending cuts.
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 #99, which places it in the top 39% 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 3.8% against the broader sector’s decline of 2.2%. The S&P 500 has risen 24.1% 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 33.84X compared with the broader industry’s 22.33X and the S&P 500’s 20.88X.
Over the past five years, the industry has traded as high as 41.80X, as low as 26.79X and at the median of 33.29X, 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
Edwards Lifesciences: Irvine, CA-based Edwards Lifesciences deals in products and technologies aimed at treating advanced cardiovascular diseases, especially structural heart disease in critically ill patients. Edwards Lifesciences expects to maintain its leadership position in the global Transcatheter Aortic Valve Replacement (TAVR) market through increased focus on expanding patient access by actively leveraging current valve platforms for additional indications, by developing next-generation valve platforms, and maintaining trusted relationships with clinicians, payers and regulators.
The Zacks Consensus Estimate for Edwards Lifesciences’s 2024 sales is pegged at $6.52 billion, indicating an 8.6% rise from 2023. The same for EW’s adjusted earnings is pegged at $2.76 per share, a 9.9% projected improvement from 2023. Edwards Lifesciences carries a Zacks Rank #2 (Buy) currently.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: EW
DexCom: San Diego, CA-based DexCom is a medical device company focused on the design, development and commercialization of continuous glucose monitoring systems (CGM). These are for ambulatory use by people with diabetes and by healthcare providers for the treatment of diabetic and non-diabetic patients. DexCom continues to expand its product portfolio with the addition of new products like DexCom One and G7 Sensor. Sales of these products reflect strong demand since their launch late last year.
The consensus estimate for this Zacks Rank #2 company’s 2024 sales is pegged at $4.32 billion, indicating a 19.2% rise from 2023. The consensus mark for DexCom’s 2024 EPS is pegged at $1.76, indicating an improvement of 15.8% from the year-ago period reported figure.
Price and Consensus: DXCM
STERIS: Ohio-headquartered STERIS develops, manufactures and markets infection prevention, decontamination, microbial reduction, and surgical and gastrointestinal support products and services. The bulk of STERIS’ revenues are obtained from the healthcare and pharmaceutical industries. Growth in these industries is primarily driven by the aging of the global population, as an increasing number of individuals are entering their prime healthcare consumption years.
The consensus estimate for this Zacks Rank #2 company’s fiscal 2025 sales is pegged at $5.84 billion, indicating a 6.7% rise from fiscal 2024. The consensus mark for STERIS’s fiscal 2025 EPS is pegged at $9.52, indicating an increase of 9.9% from the year-ago period reported figure.
Price and Consensus: STE