MedTech manufacturers, who were literally hankering for the easing of monetary policy following a prolonged period of challenging business scenarios, probably heaved a sigh of relief after September’s aggressive rate cut. The highly-anticipated 50-bps rate cut by the Fed, bringing the federal funds rate to a 4.75% to 5% target range, is considered a turning point in overcoming the ongoing challenges of a period of decline and decadence within the MedTech space.

With a high probability of another half a percentage point cut in the rest of 2024, as part of the central bank’s gradual unwinding of its tight monetary policy, MedTech stocks have already started to witness strong investors’ optimism.

Here, we have picked three medical device majors — Veracyte (VCYT Quick QuoteVCYT - Free Report) , Boston Scientific (BSX Quick QuoteBSX - Free Report) and Phibro Animal Health (PAHC Quick QuotePAHC - Free Report) . These companies are expected to experience business gains going forward as a result of the easing of monetary policy.

Concerns Within MedTech

Since 2023, despite the end of the pandemic, MedTech players have hardly had any significant respite, thanks to growing global economic challenges and uncertainties that have made it harder for them to manage operations and predict financial outcomes. Geopolitical conditions, including conflicts in Russia and Ukraine, Israel, Palestine and surrounding areas, tensions between the United States and China, and tariff and trade policy changes, along with potential energy shortages in Europe and increased energy and transportation costs, are impacting these companies’ operational results.

Meanwhile, supply-chain risks associated with inflation, the threat of recession, currency volatility or devaluation and the worldwide shortage of semiconductor chips also persist. In MedTech, in particular, post-pandemic, staffing shortages within the hospital systems have been a major challenge.

September's Share Price Comparison

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Further, the pandemic has exposed hospitals to a plethora of challenges, including a significant surge in medical supply expenses. These are putting significant pressure on the margins of various medical device companies starting from bigshots to low caps.

Will Rate Cut Bring Any Relief for MedTech Manufacturers?

A recent report by Investopedia noted that Wall Street has good reasons to be optimistic about the market's future. During any Fed easing cycle in the past,  when the rate cuts have taken place outside of a recession, stocks have soared.  However, rate cuts have not been able to prevent the stock market from falling into recession.

Several market watchers still fear a recession on account of the July unemployment rate of 4.3% that rose to the highest level since October 2021. However, the August job market trend has been better, based on which Wall Street banks like Goldman Sachs have discounted their recession prediction for 2024.

Amid this chaos, we believe the MedTech manufacturing space will be one of the biggest gainers from the interest rate cut. During the pandemic, this industry was stuck in survival mode, looking to sustain itself on non-COVID nonessential medical care equipment. At that time, industry-wide research and development was hugely disrupted.

Post the pandemic, while the global medical industry finally started to adapt to the new normal norms with genAI breakthrough being the major growth driver, once again,  MedTech players were seen restricting their R&D activity, hurt by the high rate of innovation-bound borrowings. This apart, high interest rates were also responsible for reducing the aggregate demand of end users leading to demand-supply disequilibrium and price drop. Over the past several months, all these have significantly discouraged industry players from investing in medical technology innovations, resulting in a slower pace of sectoral growth.

The latest rate cut, as part of the ongoing process of easing monetary policy, is expected to finally address all the abovementioned issues in no time.

3 MedTech Stocks to Gain From the Fed Rate Cut

Veracyte: Its business expansion approach involves identifying medical needs, developing tests and securing clinical evidence, reimbursement and guideline inclusion to drive market penetration. The strategy enables it to invest in long-term growth drivers, such as tackling new cancer challenges with the Percepta Nasal Swab test. The company significantly invests in clinical validation studies in order to secure reimbursement from payers for the test before it is made widely available.

However, under the tough monetary policy scenario, Veracyte experienced significant declines in biopharma and other services revenues as a result of reductions in customer projects, extended sales cycles and overall spending constraints across the industry. The latest rate cut is expected to improve the overall spending scenario, thereby largely eliminating these challenges for Veracyte.

VCYT currently sports a Zacks Rank #1 (Strong Buy). In September, the stock gained 7.1%. In 2024, the company is expected to report a staggering 113.7% earnings growth on a 21% rise in revenues. You can see the complete list of today’s Zacks #1 Rank stocks here.

Boston Scientific: Banking on strong execution of core growth strategies, Boston Scientific is seeing strength across target markets. However, worldwide demand for the company’s broad range of legacy products like Electrophysiology and Structural Heart lines, gastrointestinal and pulmonary treatment options, as well as Pain and Brain franchisees, is being hampered by difficult macroeconomic conditions.

Further, volatile financial market dynamics and significant volatility in price and availability of goods and services are putting pressure on Boston Scientific’s profitability. While the global macro environment will continue to remain challenging through the rest of 2024, we expect the Fed’s rate cuts to improve the company’s borrowing situation, leading to an improvement in the overall business scenario.

BSX currently carries a Zacks Rank #2 (Buy). In September, the stock gained 2%. In 2024, the company is expected to report 17.1% earnings growth on a 14.2% rise in revenues.

Phibro Animal Health: The company’s business benefits from the introduction of high-value products in the vaccine product line. Phibro Animal Health has been strategically investing in vaccines, nutritional specialties and companion animals to capitalize on growth opportunities. With its extensive global presence, Phibro Animal Health has a strong potential to expand into emerging markets, too.

However, the company’s business was severely impacted by a tough borrowing environment, supply chain and logistics disruptions, as well as macroeconomic impacts from the exclusion of Russian financial institutions from the global banking system. Undoubtedly, the Fed’s latest rate cut is expected to improve the scenario to some extent for Phibro Animal Health.

PAHC currently carries a Zacks Rank of #2. In September, the stock gained 5.1%. In fiscal 2025, the company is expected to report 21% earnings growth on a 17.1% rise in revenues.