For Immediate Release
Chicago, IL – March 21, 2018 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Cerner Corporation (CERN - Free Report) , AmerisourceBergen Corporation (ABC - Free Report) , Fresenius Medical Care (FMS - Free Report) and Olympus Corp. (OCPNY - Free Report) .
Here are highlights from Tuesday’s Analyst Blog:
3 Favorable Trends in MedTech Dispelling Tax Repeal Worries
The tax-repeal saga has been dominating the headlines of the U.S. MedTech industry since the last couple of months.
While numerous reports are expecting it to be a solid buffer, the Congressional Budget Office (“CBO”) forecasts rather ominous implications of this tax relief on the nation’s economy.
The ‘Alarming’ CBO Report
A report published by the CBO projects that the two-year tax suspension will cost the federal government about $3.7 billion during that period, and $310 billion to federal-budget deficits over the next decade. In this regard, the federal budget deficit has already reached $228 billion in the first three months of the current fiscal, almost $18 billion more than the deficit in the first quarter of fiscal 2017.
However, Republicans spurned these concerns with the belief that tax cuts will drive faster growth.
In fact, the right-wing conservatives are of the opinion that America’s unparalleled purchasing power, massive demand for medical services, and opportunity for innovation has lent it a competitive edge in the global space.
So, despite the CBO’s assumptions, continuous technological and strategic advancements, especially in the MedTech sector, should help the nation in increasing its gross domestic production (GDP), and minimize the deficits over the long haul.
In this regard, per Centers for Medicare and Medicaid Services report published by Advisory Board, U.S. health care spending is estimated to reach approximately $5.5 trillion by 2025, representing 19.9% of GDP.
Consequently, here we take a sneak peek on how the U.S. MedTech space is gearing up to counter the unsettling CBO projections, and which are the major companies that would lead the process.
MedTech Advancements to Minimize Deficits
Big-Data Trends to Aid MedTech
The future of MedTech is embedded in artificial intelligence, virtual reality and Big data.
Apart from GoogleFlu and HealthMap, the latest trend of Electronic Health Records has been gaining prominence in the Big-data market. A research report by Fact.MR expects the global big data analytics in healthcare market to multiply at a double-digit CAGR by 2026. In fact, companies banking on big-data analytics would save over 25% in annual costs in the upcoming years.
Of the major companies, Cerner Corporation has been hogging the limelight, courtesy of its consistent efforts to digitize electronic health record systems.
M&A activity in the MedTech space surged 50% in 2017, increasing the value of aggregate M&A to more than $200 billion (Data provided by BioSpectrum Asia).
The latest trend of rising consolidation in the healthcare space has led to a reduction in the number of players, greater market concentration and reduced competition. It has also fortified the industry against new entrants. The companies will benefit from higher market cap, which will put them in a position to negotiate with suppliers.
The latest buyout of Express Scripts by Cigna ($67-billion deal), which follows just three months after drug chain and pharmacy giant CVS Health Corp announced plans to acquire the nation's third-largest health insurer Aetna ($69 billion-deal), deserve a mention.
The MedTech industry has been favored by a massive change in consumer behavior lately. This along with changing market dynamics led to a dramatic transformation of the U.S. healthcare system over the last couple of years.
This is evident from the rise in minimally-invasive surgeries, higher demand for liquid biopsy tests and use of IT for quick and improved patient care along with the shift of the payment system to a value-based model.
3 ‘Value’ Stocks to Gain Traction
When the market is full of mixed sentiments, value investment trick can easily work. This is because most of the fundamentally good stocks are often found lying within the discounted range due to the volatility.
Thus, here we take a look at three stocks that are currently available at a cheaper rate and have been gaining prominence in the MedTech markets on the back of above trends. Notably, these stocks have Value Score of A or B.
Apart from having favorable price performances, these stocks have a Zacks Rank #2 (Buy) and have witnessed strong margin expansion in the last couple of years. Although no single metric can determine the profitability of a business accurately, investors can count on net margin to get a fair idea of the amount of profit a company is making.
The stock has a Value Score of B and returned 86.8% in the last five years, much higher than the S&P 500’s growth of 12.7%.
Consolidation has been one of the major catalysts behind the company’s growth. In January 2018, AmerisourceBergen declared that it has completed the acquisition of H.D. Smith, the largest independent wholesaler in the United States, for $815 million in cash. The deal was initiated back in November 2017.
Coming to net margins, the company’s net margin has expanded significantly in the last couple of years. The company invested nearly $1 billion in capital expenditures to create operational efficiencies, leverage scale and provide best-in-class customer service in the last two years alone.
The company is now well positioned to realize long-term benefits from these. Further, the recent U.S. tax legislation enhances the company’s ability to invest in business, innovate and deliver value to its shareholders.
Fresenius Medical Care
Fresenius Medical has had a solid price performance over the past year, returning 25.9%. The stock has a Value Score of B.
Acquisitions have been a key catalyst for the company. In an initiative to boost its long-term strategy or the ‘Growth-Strategy 2020’, Fresenius Medical has signed an agreement to acquire all outstanding shares of NxStage Medical for $30 a share. The transaction has been valued at $2 billion and is subject to close by 2018, following approval from NxStage stockholders and other customary conditions.
Fresenius Medical expects the buyout to prove accretive to earnings within three years from deal closure. Furthermore, the deal is anticipated to provide annual pre-tax cost savings of $80-$100 million over the next three to five years. The company also expects integration costs of about $150 million over the next three years from the time of announcement in 2017.
Fresenius Medical’s expanding net-margin trends hold promise. Further, the company has launched the second phase of its Global Efficiency Program (GEP II) in 2018. The program’s aim is to identify and realize further efficiency potential and enhance the overall competitiveness of Fresenius Medical. Starting in 2018, GEP II targets to achieve sustained cost improvements of EUR 100 to 200 million per annum by 2020.
The stock has a Value Score of B and returned 9.9% in the last year.
Headquartered in Tokyo, Japan, Olympus manufactures and sells precision machineries and instruments worldwide. The company has a long-term expected earnings growth rate of 9.4% and holds considerable promise in the long haul.
With solid growth in North America, the company’s net-margin trends have been solid in the last couple of years. The company is expected to witness strong growth in Japan and Europe, courtesy of VISERA ELITE II and impressive energy device performance.
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