Back to top

Image: Bigstock

Medical Products Industry's Near-Term Outlook Lacks Spark

Read MoreHide Full Article

The Zacks Medical – Products industry comprises companies that provide medical products and cutting-edge technologies for diagnosis, observation, consultation, treatment and other healthcare services. Notably, the companies belonging to this industry are primarily focused on research and development.

The industry participants cater to vital therapeutic areas like cardiovascular devices, nephrology and urology devices, ophthalmic devices, neurological devices, dermatological devices, respiratory devices, skin care devices, dental devices, orthopedic devices and gastrointestinal devices.

Notably, some of the key industry players include Abbott Laboratories (ABT - Free Report) , Baxter International Inc. (BAX - Free Report) , Boston Scientific Corporation (BSX - Free Report) , ResMed Inc. (RMD - Free Report) and Perrigo Company plc (PRGO - Free Report) .

Let us take a look at the three major themes in the industry:

  • AI, Medical Mechatronics & Robotics: The rising utilization of minimally-invasive robot-assisted surgeries, self-automated home-based care, use of IT for quick and improved patient care, and shift of the payment system to a value-based model highlight the growing influence of AI in the Medical Products space. In fact, mechatronics — a high-end technology incorporating electronics, ML and mechanical engineering — is rapidly becoming a defining characteristic of the space. Intuitive Surgical (ISRG - Free Report) deserves a special mention with respect to AI, robotics and medical mechatronics. The company designs, manufactures and markets the da Vinci surgical system — an advanced robot-assisted surgical platform. This Mechatronic-based platform enables minimally-invasive surgery that helps reduce trauma associated with open surgery.
  • Growing R&D Expenditure: In 2019, top MedTech companies increased R&D spending across the board. This trend is likely to continue in 2020 as well. Higher R&D expenditure is putting more MedTech products into a faster approval cycles, thereby leading to more new products being marketed. Per a report by EvaluateMedTech, published by Medical Device and Diagnostic Industry, Medtronic (MDT - Free Report) is likely to be the biggest spender (spending $2.5 billion by 2020). This constitutes 8.5% of the total expenditure that the entire MedTech industry is anticipated to spend in 2020.
  • 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 Indicates Bright Prospects

The Zacks Medical Products industry falls within the broader Zacks Medical sector. It carries a Zacks Industry Rank #98, 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 the member stocks, indicates bright 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 products 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 Underperforms S&P 500 and Sector

The industry has underperformed its sector in the past year. Also, it fell short of the Zacks S&P 500 composite over the same time frame.

The industry has declined 7.1% over this period against the S&P 500 and the broader sector’s rally of 4.6% and 1.7%, respectively.

One Year Price Performance

Industry’s Current Valuation

On the basis of the forward 12-month price-to-earnings (P/E) ratio, which is commonly used for valuing medical stocks, the industry is currently trading at 29.14X compared with the sector’s 22.7X and the S&P 500’s 22.18X.

Over the past five years, the industry has traded as high as 30.95X and as low as 17.01X, with the median being at 20.15X as the charts show below.

Price-to-Earnings Forward Twelve Months (F12M)

Price-to-Earnings Forward Twelve Months (F12M)

Bottom Line

Technologies like cloud computing, AI and Internet of Medical Things (IoMT) can simplify the healthcare delivery process and align it with changing customer needs. However, as digital health gains momentum, companies need to continually invest in security tools and services to detect (cybersecurity being one of the primary concerns) and keep risks in check.

Nonetheless, given the rising medical awareness and economic prosperity, emerging economies have been witnessing solid demand for medical products and the momentum is anticipated to continue in the near term as well.

It is important to mention here that with the coronavirus crisis intensifying since late February, elective procedures and other noncritical procedures have been impacted. This, in turn, has affected the overall performance of the medical products industry.

Here, we present three stocks have a Zacks Rank #3 (Hold), which investors can take a look at. These stocks are well positioned to grow in the days ahead. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zimmer Biomet Holdings, Inc. (ZBH - Free Report) : 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.

For this Warsaw, IN-based company, the estimated long-term earnings growth rate is at 6.9%.

Price and Consensus: ZBH

Stryker Corporation (SYK - Free Report) : 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.

For this Kalamazoo, MI-based company, the expected long-term earnings growth rate is at 9.2%.

Price and Consensus: SYK

Hill-Rom Holdings, Inc. (HRC - Free Report) : Hill-Rom Holdings is one of the leading global medical device companies. The company offers medical surgical beds, intensive care unit beds, and bariatric patient beds, lifts and other devices, non-invasive therapeutic products and surfaces, and information technologies and software solutions, and sells equipment service contracts for its capital equipment.

This Batesville, IN-based company has an anticipated long-term earnings growth rate of 15.6%.

Price and Consensus: HRC

Just Released: Zacks’ 7 Best Stocks for Today

Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.1% per year.

These 7 were selected because of their superior potential for immediate breakout.

See these time-sensitive tickers now >>