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Macroeconomic headwinds like supply-chain challenges, rising cost of materials and labor shortages are plaguing global economies, especially the medical sector, following the pandemic blues. Although revenues were on recovering trend during 2022 on the back of normalizing of economies, the macro headwinds hurt margins.
The Zacks Medical – Products industry bore the brunt along with broader market participants. New product launches and expansion into new territories are likely to drive revenues going forward. A strong demand trend in certain medical procedures related to pacing, cardiac surgery, neurovascular and diabetes are encouraging.
However, the weaknesses in the industry’s bottom line is likely to continue in the first half of 2023. The impact of rising cost is likely to come down as we proceed down the year. The industry participants are gradually raising prices of product and services along with cost-cutting initiatives to offset inflationary pressure.
The European and international markets are also showing signs of a steady recovery in demand for medical products. Meanwhile, COVID-19 impacts remain uncertain. However, declining demand for tests is hurting revenues.
Despite the ongoing macro headwinds, several industry players have not shown signs of slowing down yet. Industry participants like Stryker, Zimmer Biomet and Haemonetics are likely to gain from the rebound in demand and new cost-cutting initiatives.
Industry Description
The industry includes companies providing medical products and cutting-edge technologies for diagnosis, observation, consultation, treatment and other healthcare services. The industry players are primarily focused on research and development. The industry participants primarily cater to vital therapeutic areas like cardiovascular, nephrology and urology devices, to name a few. Strengthening dollar and labor shortage are hurting top-line growth.
Lockdowns across several countries, notably China, in the first half of 2022 led to significant supply chain disruptions. Recent inflationary pressure and labor shortages are weighing on gross and operating margins of the industry players. The trend is likely to continue in 2023. However, rising demand for medical procedures along with cost-cutting initiatives is likely to drive industry performance going forward.
Major Trends Shaping the Future of the Medical Products 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 the shift of the payment system to a value-based model underscore the growing influence of AI in the Medical Products space. In fact, mechatronics — a high-end technology incorporating electronics, machine learning and mechanical engineering — is rapidly becoming a defining characteristic of the space.
There are several companies that have shown substantial prowess when it comes to their involvement in AI, robotics and medical mechatronics. Advancements in robot-assisted surgical platforms continue to be crucial with respect to minimally-invasive surgery that helps in reducing trauma associated with open surgery. With respect to Mechatronics, the benefits of the same have been demonstrated in the form of 3D printing, which has altered the face of the medical devices industry. Currently, 3D printing is being utilized to print stem cells, blood vessels, heart tissues, prosthetic organs and skin.
Rising Demand for IVD: Toward the end of February 2020, the COVID-19 outbreak started to spread rapidly and took the shape of a pandemic. This led to a rise in global demand for diagnostic testing kits in order to curb the spread of the virus. Testing became the need of the hour and that led to a shift in the pipeline of IVD products, with a large number of rapid, point-of-care devices going into development.
Companies not only received emergency use authorization (EUA) from the FDA but also bolstered production to aid testing shortages. The industry players anticipate significant demand for rapid diagnostic testing in the future as well and are well-poised to capitalize on the same.
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
The Zacks Medical Products industry falls within the broader Zacks Medical sector.
It carries a Zacks Industry Rank #161, which places it in the bottom 36% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates bleak 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 Performance
The industry has underperformed its own sector and the Zacks S&P 500 composite in the past year.
Stocks in this industry have collectively declined 36.9% compared with the Zacks Medical sector’s decline of 12.1%. The S&P 500 has lost 8.8% in the same time frame.
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 23.3X compared with the S&P 500’s 18.9X and the sector’s 22.9X.
Over the last five years, the industry has traded as high as 30X and as low as 19.2X, with the median being at 23.7X.
3 Promising Medical Products Stocks
Stryker: 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.
Stryker continues to deliver strong organic sales growth on the back of robust demand for its MedSurg and Neurotechnology businesses, led by Endoscopy, Instruments and Neurocranial. Orthopedics and Spine businesses are also on an encouraging growth path, reflecting procedural recovery throughout the quarter. Internationally, the company continues to post strong organic growth, highlighted by robust organic growth in Europe and emerging markets.
Stryker continues to witness strong demand for its robotic-arm assisted surgery platform — Mako — on the back of its unique features and healthy order book despite financial constraints stemming from the COVID-19 pandemic. However, hospital staffing pressures weighed on pockets around the globe, impeding growth.
Following its strong fourth-quarter 2022 results, the company expects total revenue growth at a constant exchange rate (“CER”) of 7-8.5% for 2023. Adjusted EPS is now expected to be within $13.20-$13.80, up from the prior guidance of $9.85-$10.15. Currently, the company carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
For this Kalamazoo, MI-based company, the Zacks Consensus Estimate for 2023 revenues is pegged at $19.7 billion. The consensus mark for earnings stands at $10.00 per share. It has a trailing four-quarter earnings surprise of 0.37%, on average.
Zimmer Biomet: 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.
Zimmer Biomet ended the fourth quarter of 2022 with better-than-expected earnings and revenues. Each of the company’s geographic segments and product divisions recorded year-over-year sales growth at CER. Even amid the challenging macroeconomic conditions, expansion in the company’s adjusted gross and operating margins is encouraging. Despite the near-term pressure, Zimmer Biomet is putting efforts for business recovery.
Meanwhile, the company’s planned spin-off of its dental & spine arm as part of its ongoing transformation to accelerate growth and drive value creation looks promising. The last few quarters witnessed gradual stability in the global musculoskeletal market with better-than-expected sales growth in certain geographies, banking on improved procedural volume. Following encouraging fourth-quarter results, the company expects its revenue and adjusted earnings to grow 1.5-3.5% and 0.9-3.8% respectively, compared to 2022 metrics. Currently, the company has a Zacks Rank #2.
For this Warsaw, IN-based company, the Zacks Consensus Estimate for 2023 revenues is pegged at $7.13 billion. The consensus mark for earnings stands at $7.03 per share. It has a trailing four-quarter earnings surprise of 7.67%, on average.
Haemonetics: The company provides blood management solutions to customers encompassing blood and plasma collectors, hospitals and health care providers globally. The company’s portfolio of integrated devices, information management, and consulting services offers blood management solutions for each facet of the blood supply chain, helping better clinical outcomes.
The robust performance of the Plasma and Hospital business, with continued strength in the Hemostasis Management product line, instills optimism. Robust contributions from the Vascular Closure business also seem promising. The expansion of both margins is an added advantage. Haemonetics has been witnessing strong growth in Plasma franchise for quite some time. In the global plasma market, Haemonetics holds 80% share approximately.
Haemonetics is currently witnessing plasma market growth above historic rates, driven by an industry striving to double collections by 2025 and the rising demand for plasma-based medicines. Strong volume growth in plasma and hospitals as well as additional savings from the Operational Excellence Program is likely to drive the company’s performance going forward in 2023.
Following the strong fiscal third-quarter results, Haemonetics raised GAAP total revenue growth guidance to the range of 15-17% on a reported basis (up from the prior projection of 12-15%). Organic revenue growth is currently expected in the range of 18-20%. The company also raised the lower band of its guidance for adjusted earnings from $2.70-$3.00 to $2.960-$3.00.
For this Boston, MA-based company, the Zacks Consensus Estimate for fiscal 2023 revenues suggest an improvement of 12.6%. The consensus estimate for earnings indicates an improvement of 11.2%. It has a trailing four-quarter earnings surprise of 10.98%, on average. Presently, the company carries a Zacks Rank of 2.
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights Stryker, Zimmer Biomet and Haemonetics
For Immediate Release
Chicago, IL – February 10, 2023 – Today, Zacks Equity Research discusses Stryker (SYK - Free Report) , Zimmer Biomet (ZBH - Free Report) and Haemonetics (HAE - Free Report) .
Industry: Medical Products
Link: https://www.zacks.com/commentary/2052123/3-medical-products-stocks-navigating-industry-challenges
Macroeconomic headwinds like supply-chain challenges, rising cost of materials and labor shortages are plaguing global economies, especially the medical sector, following the pandemic blues. Although revenues were on recovering trend during 2022 on the back of normalizing of economies, the macro headwinds hurt margins.
The Zacks Medical – Products industry bore the brunt along with broader market participants. New product launches and expansion into new territories are likely to drive revenues going forward. A strong demand trend in certain medical procedures related to pacing, cardiac surgery, neurovascular and diabetes are encouraging.
However, the weaknesses in the industry’s bottom line is likely to continue in the first half of 2023. The impact of rising cost is likely to come down as we proceed down the year. The industry participants are gradually raising prices of product and services along with cost-cutting initiatives to offset inflationary pressure.
The European and international markets are also showing signs of a steady recovery in demand for medical products. Meanwhile, COVID-19 impacts remain uncertain. However, declining demand for tests is hurting revenues.
Despite the ongoing macro headwinds, several industry players have not shown signs of slowing down yet. Industry participants like Stryker, Zimmer Biomet and Haemonetics are likely to gain from the rebound in demand and new cost-cutting initiatives.
Industry Description
The industry includes companies providing medical products and cutting-edge technologies for diagnosis, observation, consultation, treatment and other healthcare services. The industry players are primarily focused on research and development. The industry participants primarily cater to vital therapeutic areas like cardiovascular, nephrology and urology devices, to name a few. Strengthening dollar and labor shortage are hurting top-line growth.
Lockdowns across several countries, notably China, in the first half of 2022 led to significant supply chain disruptions. Recent inflationary pressure and labor shortages are weighing on gross and operating margins of the industry players. The trend is likely to continue in 2023. However, rising demand for medical procedures along with cost-cutting initiatives is likely to drive industry performance going forward.
Major Trends Shaping the Future of the Medical Products 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 the shift of the payment system to a value-based model underscore the growing influence of AI in the Medical Products space. In fact, mechatronics — a high-end technology incorporating electronics, machine learning and mechanical engineering — is rapidly becoming a defining characteristic of the space.
There are several companies that have shown substantial prowess when it comes to their involvement in AI, robotics and medical mechatronics. Advancements in robot-assisted surgical platforms continue to be crucial with respect to minimally-invasive surgery that helps in reducing trauma associated with open surgery. With respect to Mechatronics, the benefits of the same have been demonstrated in the form of 3D printing, which has altered the face of the medical devices industry. Currently, 3D printing is being utilized to print stem cells, blood vessels, heart tissues, prosthetic organs and skin.
Rising Demand for IVD: Toward the end of February 2020, the COVID-19 outbreak started to spread rapidly and took the shape of a pandemic. This led to a rise in global demand for diagnostic testing kits in order to curb the spread of the virus. Testing became the need of the hour and that led to a shift in the pipeline of IVD products, with a large number of rapid, point-of-care devices going into development.
Companies not only received emergency use authorization (EUA) from the FDA but also bolstered production to aid testing shortages. The industry players anticipate significant demand for rapid diagnostic testing in the future as well and are well-poised to capitalize on the same.
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
The Zacks Medical Products industry falls within the broader Zacks Medical sector.
It carries a Zacks Industry Rank #161, which places it in the bottom 36% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates bleak 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 Performance
The industry has underperformed its own sector and the Zacks S&P 500 composite in the past year.
Stocks in this industry have collectively declined 36.9% compared with the Zacks Medical sector’s decline of 12.1%. The S&P 500 has lost 8.8% in the same time frame.
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 23.3X compared with the S&P 500’s 18.9X and the sector’s 22.9X.
Over the last five years, the industry has traded as high as 30X and as low as 19.2X, with the median being at 23.7X.
3 Promising Medical Products Stocks
Stryker: 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.
Stryker continues to deliver strong organic sales growth on the back of robust demand for its MedSurg and Neurotechnology businesses, led by Endoscopy, Instruments and Neurocranial. Orthopedics and Spine businesses are also on an encouraging growth path, reflecting procedural recovery throughout the quarter. Internationally, the company continues to post strong organic growth, highlighted by robust organic growth in Europe and emerging markets.
Stryker continues to witness strong demand for its robotic-arm assisted surgery platform — Mako — on the back of its unique features and healthy order book despite financial constraints stemming from the COVID-19 pandemic. However, hospital staffing pressures weighed on pockets around the globe, impeding growth.
Following its strong fourth-quarter 2022 results, the company expects total revenue growth at a constant exchange rate (“CER”) of 7-8.5% for 2023. Adjusted EPS is now expected to be within $13.20-$13.80, up from the prior guidance of $9.85-$10.15. Currently, the company carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
For this Kalamazoo, MI-based company, the Zacks Consensus Estimate for 2023 revenues is pegged at $19.7 billion. The consensus mark for earnings stands at $10.00 per share. It has a trailing four-quarter earnings surprise of 0.37%, on average.
Zimmer Biomet: 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.
Zimmer Biomet ended the fourth quarter of 2022 with better-than-expected earnings and revenues. Each of the company’s geographic segments and product divisions recorded year-over-year sales growth at CER. Even amid the challenging macroeconomic conditions, expansion in the company’s adjusted gross and operating margins is encouraging. Despite the near-term pressure, Zimmer Biomet is putting efforts for business recovery.
Meanwhile, the company’s planned spin-off of its dental & spine arm as part of its ongoing transformation to accelerate growth and drive value creation looks promising. The last few quarters witnessed gradual stability in the global musculoskeletal market with better-than-expected sales growth in certain geographies, banking on improved procedural volume. Following encouraging fourth-quarter results, the company expects its revenue and adjusted earnings to grow 1.5-3.5% and 0.9-3.8% respectively, compared to 2022 metrics. Currently, the company has a Zacks Rank #2.
For this Warsaw, IN-based company, the Zacks Consensus Estimate for 2023 revenues is pegged at $7.13 billion. The consensus mark for earnings stands at $7.03 per share. It has a trailing four-quarter earnings surprise of 7.67%, on average.
Haemonetics: The company provides blood management solutions to customers encompassing blood and plasma collectors, hospitals and health care providers globally. The company’s portfolio of integrated devices, information management, and consulting services offers blood management solutions for each facet of the blood supply chain, helping better clinical outcomes.
The robust performance of the Plasma and Hospital business, with continued strength in the Hemostasis Management product line, instills optimism. Robust contributions from the Vascular Closure business also seem promising. The expansion of both margins is an added advantage. Haemonetics has been witnessing strong growth in Plasma franchise for quite some time. In the global plasma market, Haemonetics holds 80% share approximately.
Haemonetics is currently witnessing plasma market growth above historic rates, driven by an industry striving to double collections by 2025 and the rising demand for plasma-based medicines. Strong volume growth in plasma and hospitals as well as additional savings from the Operational Excellence Program is likely to drive the company’s performance going forward in 2023.
Following the strong fiscal third-quarter results, Haemonetics raised GAAP total revenue growth guidance to the range of 15-17% on a reported basis (up from the prior projection of 12-15%). Organic revenue growth is currently expected in the range of 18-20%. The company also raised the lower band of its guidance for adjusted earnings from $2.70-$3.00 to $2.960-$3.00.
For this Boston, MA-based company, the Zacks Consensus Estimate for fiscal 2023 revenues suggest an improvement of 12.6%. The consensus estimate for earnings indicates an improvement of 11.2%. It has a trailing four-quarter earnings surprise of 10.98%, on average. Presently, the company carries a Zacks Rank of 2.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.