The Medical Instrument industry within the broader Medical universe has been gaining on R&D innovation, higher consolidation, focus on emerging market and tax abolition. The industry increased 3.6% in a month’s time, higher than the S&P 500 index’s rise of 2%.
Fundamentally, the industry has benefited by a massive change in consumer behavior as well. This is evident from the rise in minimally-invasive surgeries, higher demand for liquid biopsy tests as well as use of IT for quick and improved patient care along with the shift of the payment system to a value-based model.
It will be interesting to analyze the best Medical Instrument stocks that are likely to yield solid returns in the days to come. But first, let us glance at the latest headlines from the space.
Latest Medical Instrument Headlines at a Glance
Stryker’s Takeover Plans of Boston Scientific
The Medical Instrument fraternity has been riding on the current merger and acquisition (M&A) trends.
Per a recent report by the Reuters, Stryker Corporation (SYK - Free Report) is likely to take over Boston Scientific Corporation (BSX - Free Report) , creating a market value of more than $110 billion. However, the possibility of the deal is uncertain. Thre are no confirmatory statements or press releases from the company representatives.
In fact, investors should never forget about Stryker’s highly-rumored acquisition plans of Smith & Nephew in 2015, which never materialized. On the brighter side, this is not the first time Stryker has been tied up with Boston Scientific. The company acquired Boston Scientific's neurovascular unit in 2010 for $1.5 billion, which indicates probability of a second collaboration (read more: Stryker Likely to Acquire Boston Scientific).
Stryker has a Zacks Rank #2 (Buy).
If the deal materializes, the combined entity will have one of the MedTech’s broadest spectrums of product offerings that include cardiology, orthopaedics, surgical supplies and neuroscience. This will reduce pricing pressure and competition. Further, the companies with a strong acquisition policy will gain from rapidly-expanding customer base, moderate leverage and enhanced cash flow.
Glancing at major acquisitions in the recent past, Becton, Dickinson and Company’s takeover of C. R. Bard for $24 billion and JOHNSON & JOHNSON’s buyout of Covidien for about $43 billion deserve a mention.
Abiomed Reserves Slot in the S&P 500
Leading Medical Instrument player Abiomed Inc (ABMD - Free Report) replaced Wyndham Worldwide Corp and entered the S&P 500 Global Industry Classification Standard (GICS) Health Care Supplies Sub-Industry index.
Per a research report by The Globe and Mail, Abiomed is following the trend of medical device and technology companies reserving the top slot in the S&P 500 index. To remind investors, Align Technology Inc (ALGN - Free Report) topped the index in 2017.
Abiomed currently has a market capitalization of $18.6 billion. Further, the company’s financial viability, adequate liquidity, reasonable price and sector representation has lent it a competitive edge in the U.S. Medical Instrument industry (read more: Abiomed to Replace Wyndham in the S&P 500 Benchmark).
Tax Abolition Boosting R&D
A bipartisan two-year suspension of a ‘Medical Device’ tax, which imposed a 2.3% excise tax on MedTech manufacturers, has been a temporary relief. This tax took a toll on the entire medical device industry since its enactment. Per the Advanced Medical Technology Association lobbying group, this tax had a negative impact on medical innovation resulting in loss or deferred creation of jobs.
For now, the deferral will encourage R&D activities in this space. The repeal of the tax paradigm is expected to boost hiring and investment among the 9,000 America-based medical device manufacturers, instilling investor’s optimism. The ratification of the Tax-repeal amendment has invoked massive investment in the sector.
3 Top Medical Instrument Stocks
Considering the existence of the number of players in the Medical Instruments industry, choosing the right stocks with the potential to yield returns might be a daunting task.
Our proprietary Zacks methodology makes it fairly simple for you.
We have taken the help of the Zacks Stock Screener to select favorable stocks. We have selected stocks that have a favorable Growth Style Score of A or B and carry a Zacks Rank #1 (Strong Buy) or 2. Our research shows that stocks with Style Scores of A or B, when combined with a Zacks Rank #1 or 2, offer the best investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
Varian Medical Systems Inc (VAR - Free Report) outperformed the industry in a month’s time. The stock has returned 4% and has a Zacks Rank #2. The Zacks Consensus Estimate for full-year earnings is currently pegged at $4.50, up 25% year over year.
In June, Varian Medical Systems demonstrated its comprehensive portfolio of advanced brachytherapy solutions in the American Brachytherapy Society Annual Meeting. The development is likely to boost Varian's Oncology Systems segment. Apart from various volumetric modulated arc therapy (VMAT), stereotactic radiosurgery and stereotactic radiotherapy, the brachytherapy unit is a significant contributor of Oncology Systems.
The company has been gaining consistently from its coveted Halcyon platform — a cost-effective radiotherapy cancer treatment system. Notably, the company also launched Halcyon 2.0 with kilovoltage imaging. Solid revenues from Oncology, growing adoption of Particle Therapy and strong overseas presence, particularly in the emerging countries are positives.
Varian has also been going global in acquisitions and agreements. Recent buyouts include Sirtex of Australia and COOP of Taiwan along with a partnership with the Ministry of Health, Brazil. A solid guidance for fiscal 2018 instills confidence.
Intuitive Surgical Inc (ISRG - Free Report) outperformed its industry in a month. The stock has risen almost 6.1% and sports a Zacks Rank #1. The Zacks Consensus Estimate for full-year earnings is currently pegged at $10.26, up 14.1% year over year.
Growing adoption of the company’s da Vinci system, increasing procedure volumes, continuous innovation and solid recurring revenue base are the key catalysts.
Intuitive Surgical’s da Vinci surgical system enables minimally-invasive surgery that helps avoid the trauma associated with open surgery. The da Vinci System is powered by robotic technology that allows the surgeon’s hand movements to be translated into smaller, precise movements of tiny instruments inside the patient’s body.
da Vinci has bolstered the company’s foothold in the markets of Cardiac Surgery, Colorectal Surgery, General Surgery, Gynecologic Surgery, Head & Neck Surgery, Thoracic Surgery and Urologic Surgery. The da Vinci system has made available minimally invasive surgery to more than 3 million patients worldwide.
Recently, the system has cured patients diagnosed with inguinal hernia.
Integer Holdings Corporation (ITGR - Free Report) outperformed the industry in the last three months. The stock has returned 13.3%, against the industry’s decline of 14.3%. The Zacks Consensus Estimate for full-year earnings is currently pegged at $3.37, up 19.9% year over year.
The company witnessed an impressive start to 2018 on high organic and year-over-year growth in earnings and revenues. The Cardio & Vascular arm deserves a special mention here. The other segments have also been delivering a solid performance.
The strategic divestment of the Advanced Surgical, Orthopedics & Portable Medical wing to MedPlast, LLC is expected to prove profitable in the quarters ahead. The company has a multi-year plan for long-term developments. An impressive guidance, declining operating expenses and the clearing of debt are other major positives.
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