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3 Medical Instruments Stocks to Buy Amid Industry Challenges
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The Medical Instruments industry has witnessed a significant transformation in the nature of business lately, leading to increased investment in R&D for the development of cutting-edge technologies. The healthcare crisis over the past two and a half years has further altered the industry landscape, putting robotic and remote medical services in the limelight. Despite the reopening of the economy, deteriorating international trade, with global inflationary pressure leading to an extremely tough situation related to raw material and labor cost as well as freight charges, has put the industry in a tight spot again. Further, industry watchers are still unable to gauge the magnitude of economic revival due to the emergence of new COVID strains in selective parts of the world from time to time.
The just-reported first-quarter results of a number of medical instrument companies confirmed a gradual rebound in their base businesses. However, the industry-wide trend of staffing shortages and supply chain-related hazards are denting growth. Meanwhile, industry players like Hologic, Inc. (HOLX - Free Report) , Masimo Corporation (MASI - Free Report) and Integer Holdings (ITGR - 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
M&A Trend Continues: The medical instruments space has been benefiting from the ongoing merger and acquisition (M&A) trend. In fact, various reports suggest that M&A has been the key catalyst in the U.S. MedTech space of late. 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. In 2022, the MedTech space faced a slowdown in terms of M&A compared to the previous years. It only had 11 mega deals. However, markets watchers expect the M&A scenario to rebound in 2023 despite the volatile economic situation. Among the significant deals of recent times, in April 2023, Abbott acquired Cardiovascular Systems at a total expected equity value of approximately $890 million. In February, Globus Medical made a $3.1 billion deal to acquire spine technology company, NuVasive. Medtronic is also divesting and restructuring its divisions for future acquisitions.
Business Trend Disruption: Considering the ongoing macroeconomic situation, the IMF came up with its April 2023 World Economic Outlook Update. Per the baseline forecast, growth is expected to decelerate from 3.4% in 2022 to 2.8% in 2023, before settling at 3% in 2024. IMF expects developed economies to see an especially pronounced growth slowdown, from 2.7% in 2022 to 1.3% in 2023. IMF specifically noted that the global headline inflation in the baseline is going to fall from 8.7% in 2022 to 7% in 2023 due to lower commodity prices. However, the underlying (core) inflation is likely to decline more slowly. Inflation’s return to target is unlikely before 2025 in most cases. On a brighter note, strengthening household balance sheets and wage growth are driving private demand. Overall, Medical Instruments industry players are expected to collectively report a year-over-year decline in their revenues due to logistical challenges and increasing unit cost. This might get offset by an increase in essential and non-essential product demand by private households.
Digital Revolution: With an increase in the adoption of digital platforms within the medical device space, robotic surgeries, big-data analytics, bioprinting, 3D printing, electronic health records (EHR), predictive analytics, real-time alerting and revenue cycle management services are gaining prominence in the United States. A June 2019 Health Care News report suggested that this market, valued at $123 billion in 2018, has been witnessing a CAGR of 25%. Various other reports suggest that companies that adopted AI witnessed a 50% reduction in treatment costs. Telemedicine stocks received an impressive response when, in 2021, the Centers for Disease Control and Prevention asked healthcare service communities to broaden the use of telemedicine.
Zacks Industry Rank Indicates Dull 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 weak near-term prospects. The industry, housed within the broader Zacks Medical sector, currently carries a Zacks Industry Rank #169, which places it in the bottom 33% 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 improved 2.4% compared with the S&P 500’s 4.9% rise in a year’s time. The broader sector has declined 9.1% in the said 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 33.80X compared with the broader industry’s 24.07X and the S&P 500’s 18.48X.
Over the past five years, the industry has traded as high as 44.77X, as low as 26.25X and at the median of 33.79X, 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
Hologic: Headquartered in Bedford, MA, Hologic develops, manufactures, and supplies diagnostics, medical imaging systems and surgical products, which cater to the healthcare needs of women. Hologic has been making impressive progress in its Breast Health arm in recent times. The company is currently focusing on expanding its strategy to diversify its business across the patient continuum of care. The company’s GYN Surgical business transformed into the most profitable division of Hologic on a percentage basis, banking on strong strategic execution of new commercial models and new product launches.
The consensus estimate for this Zacks Rank #2 (Buy) company’s 2024 sales is pegged at $4.15 billion, indicating a 3.7% rise year over year.
The consensus mark for Hologic’s 2024 EPS is pegged at $4.09, indicating an increase of 5.1% from the year-ago period reported figure.
Masimo: Irvine, CA-based Masimo develops, manufactures and markets a family of non-invasive monitoring systems. The company has two segments: Healthcare revenues and Non-healthcare revenues. On the first-quarter 2023 earnings call in May, Masimo management confirmed having new customers in its pulse oximetry business and witnessing increasing traction for rainbow and advanced parameter products, which strengthened the healthcare revenues in the quarter.
The Zacks Consensus Estimate for Masimo’s 2023 sales is pegged at $2.44 billion, indicating a 19.7% rise year over year. The same for Masimo’s adjusted earnings is pegged at $4.76 per share, an expected growth of 3.7% from 2022. Masimo carries a Zacks Rank #2.
Price and Consensus: MASI
Integer Holdings: Plano, TX-based Integer Holdings manufactures and develops medical devices and components primarily for original equipment manufacturers (OEMs), which depend on it to design, develop and produce intellectual property-protected medical device technologies. Integer Holdings currently serves the cardiac, neuromodulation, orthopedics, vascular, advanced surgical and portable medical markets. The company provides innovative, high-quality medical technologies that enhance patient outcomes worldwide.
The consensus estimate for this Zacks Rank #2 company’s 2023 sales is pegged at $1.49 billion, indicating an 8.6% rise year over year. The same for Integer Holdings’ 2023 earnings is pegged at $4.15, an expected 6.9% growth from the year-ago period.
Price and Consensus: ITGR
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3 Medical Instruments Stocks to Buy Amid Industry Challenges
The Medical Instruments industry has witnessed a significant transformation in the nature of business lately, leading to increased investment in R&D for the development of cutting-edge technologies. The healthcare crisis over the past two and a half years has further altered the industry landscape, putting robotic and remote medical services in the limelight. Despite the reopening of the economy, deteriorating international trade, with global inflationary pressure leading to an extremely tough situation related to raw material and labor cost as well as freight charges, has put the industry in a tight spot again. Further, industry watchers are still unable to gauge the magnitude of economic revival due to the emergence of new COVID strains in selective parts of the world from time to time.
The just-reported first-quarter results of a number of medical instrument companies confirmed a gradual rebound in their base businesses. However, the industry-wide trend of staffing shortages and supply chain-related hazards are denting growth. Meanwhile, industry players like Hologic, Inc. (HOLX - Free Report) , Masimo Corporation (MASI - Free Report) and Integer Holdings (ITGR - 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
M&A Trend Continues: The medical instruments space has been benefiting from the ongoing merger and acquisition (M&A) trend. In fact, various reports suggest that M&A has been the key catalyst in the U.S. MedTech space of late. 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. In 2022, the MedTech space faced a slowdown in terms of M&A compared to the previous years. It only had 11 mega deals. However, markets watchers expect the M&A scenario to rebound in 2023 despite the volatile economic situation. Among the significant deals of recent times, in April 2023, Abbott acquired Cardiovascular Systems at a total expected equity value of approximately $890 million. In February, Globus Medical made a $3.1 billion deal to acquire spine technology company, NuVasive. Medtronic is also divesting and restructuring its divisions for future acquisitions.
Business Trend Disruption: Considering the ongoing macroeconomic situation, the IMF came up with its April 2023 World Economic Outlook Update. Per the baseline forecast, growth is expected to decelerate from 3.4% in 2022 to 2.8% in 2023, before settling at 3% in 2024. IMF expects developed economies to see an especially pronounced growth slowdown, from 2.7% in 2022 to 1.3% in 2023. IMF specifically noted that the global headline inflation in the baseline is going to fall from 8.7% in 2022 to 7% in 2023 due to lower commodity prices. However, the underlying (core) inflation is likely to decline more slowly. Inflation’s return to target is unlikely before 2025 in most cases. On a brighter note, strengthening household balance sheets and wage growth are driving private demand. Overall, Medical Instruments industry players are expected to collectively report a year-over-year decline in their revenues due to logistical challenges and increasing unit cost. This might get offset by an increase in essential and non-essential product demand by private households.
Digital Revolution: With an increase in the adoption of digital platforms within the medical device space, robotic surgeries, big-data analytics, bioprinting, 3D printing, electronic health records (EHR), predictive analytics, real-time alerting and revenue cycle management services are gaining prominence in the United States. A June 2019 Health Care News report suggested that this market, valued at $123 billion in 2018, has been witnessing a CAGR of 25%. Various other reports suggest that companies that adopted AI witnessed a 50% reduction in treatment costs. Telemedicine stocks received an impressive response when, in 2021, the Centers for Disease Control and Prevention asked healthcare service communities to broaden the use of telemedicine.
Zacks Industry Rank Indicates Dull 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 weak near-term prospects. The industry, housed within the broader Zacks Medical sector, currently carries a Zacks Industry Rank #169, which places it in the bottom 33% 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 improved 2.4% compared with the S&P 500’s 4.9% rise in a year’s time. The broader sector has declined 9.1% in the said 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 33.80X compared with the broader industry’s 24.07X and the S&P 500’s 18.48X.
Over the past five years, the industry has traded as high as 44.77X, as low as 26.25X and at the median of 33.79X, 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
Hologic: Headquartered in Bedford, MA, Hologic develops, manufactures, and supplies diagnostics, medical imaging systems and surgical products, which cater to the healthcare needs of women. Hologic has been making impressive progress in its Breast Health arm in recent times. The company is currently focusing on expanding its strategy to diversify its business across the patient continuum of care. The company’s GYN Surgical business transformed into the most profitable division of Hologic on a percentage basis, banking on strong strategic execution of new commercial models and new product launches.
The consensus estimate for this Zacks Rank #2 (Buy) company’s 2024 sales is pegged at $4.15 billion, indicating a 3.7% rise year over year.
The consensus mark for Hologic’s 2024 EPS is pegged at $4.09, indicating an increase of 5.1% from the year-ago period reported figure.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: HOLX
Masimo: Irvine, CA-based Masimo develops, manufactures and markets a family of non-invasive monitoring systems. The company has two segments: Healthcare revenues and Non-healthcare revenues. On the first-quarter 2023 earnings call in May, Masimo management confirmed having new customers in its pulse oximetry business and witnessing increasing traction for rainbow and advanced parameter products, which strengthened the healthcare revenues in the quarter.
The Zacks Consensus Estimate for Masimo’s 2023 sales is pegged at $2.44 billion, indicating a 19.7% rise year over year. The same for Masimo’s adjusted earnings is pegged at $4.76 per share, an expected growth of 3.7% from 2022. Masimo carries a Zacks Rank #2.
Price and Consensus: MASI
Integer Holdings: Plano, TX-based Integer Holdings manufactures and develops medical devices and components primarily for original equipment manufacturers (OEMs), which depend on it to design, develop and produce intellectual property-protected medical device technologies. Integer Holdings currently serves the cardiac, neuromodulation, orthopedics, vascular, advanced surgical and portable medical markets. The company provides innovative, high-quality medical technologies that enhance patient outcomes worldwide.
The consensus estimate for this Zacks Rank #2 company’s 2023 sales is pegged at $1.49 billion, indicating an 8.6% rise year over year. The same for Integer Holdings’ 2023 earnings is pegged at $4.15, an expected 6.9% growth from the year-ago period.
Price and Consensus: ITGR