Yahoo Finance 3 Medical Instruments Picks to Navigate Industry Challenges
The Medical Instruments industry is again in a transformative phase, thanks to the rapid adoption of generative Artificial Intelligence (genAI) and digital therapeutics, which market watchers expect will take the healthcare industry by storm. In fact, since the beginning of 2023, the industry has been witnessing the adoption of AI and the Internet of Medical Things in the form of digital healthcare options in hospitals and other healthcare settings. GenAI has also started to showcase its proficiency across a range of healthcare fields, from time-consuming administrative tasks to critical areas like technological discovery and clinical trials.
However, a deteriorating geopolitical situation, supply chain bottlenecks leading to a tough situation related to raw material and labor costs, freight charges, as well as healthcare staffing shortages, have put the industry in a tight spot again. Meanwhile, industry players like Hologic, Inc. HOLX, Masimo Corporation MASI and Veracyte, Inc. VCYT 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-19 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
Business Trend Disruption: Per IMF’s April 2024 World Economic Outlook Update, economic growth is projected to be 3.2% in 2024 and 2025, below the historical (2000–19) average of 3.8%. As per the report, a slight acceleration in advanced economies—where growth is expected to rise from 1.6% in 2023 to 1.7% in 2024—will be offset by a modest slowdown in emerging market and developing economies from 4.3% in 2023 to 4.2% in 2024. This will primarily be because of elevated central bank policy rates to fight inflation, withdrawal of fiscal support amid high debt weighing on economic activity and low underlying productivity growth. The policymakers are also concerned about the new commodity price spikes from geopolitical shocks, including continued attacks in the Red Sea. Other major factors denting growth within the medical instruments space are worsening property sector woes in China or, elsewhere, a disruptive turn to tax hikes and spending cuts.
Digital Revolution: Since 2023, there has been an increase in the adoption of genAI within the medical instruments space with “hyper personalization” being the primary feature of genAI-driven treatment options. Added to this, genAI is rapidly paving the way for efficient operational management within the industry. GenAI, while analyzing vast and complex genetic and molecular data, is expected to help healthcare reach new heights in terms of predictive treatment options and smart hospital systems. Going by an AlphaSense report, in 2024, more companies are likely to experiment with genAI in new ways, such as the use of voice prompts. They will need to acquire new capabilities and talent to reap the full benefits of this technology. Early adopters will have a competitive advantage over those who choose to resist change. An October 2023 report of Precedence Research suggests that the global digital health market size is anticipated to reach around $939.54 billion by 2032, up from $262.63 billion in 2022, at a CAGR of 13.1%.
M&A Trend Continues: The medical instruments space has been benefiting from the ongoing merger and acquisition (M&A) trend. 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. As published in a Medical Device Network report of May 2024, there were 122 M&A deals announced in the first quarter of 2024, worth a total value of $6.7 billion. In value terms, it is a decline of 3% compared to the year-ago period. In terms of deal volume, it was 22% lower than the first quarter of 2023. The significant slowdown stemmed from a tremendously volatile global macroeconomic situation, which resulted in restrained venture capital investment. The largest of the deals was the acquisition of ILC Dover by Ingersoll Rand for $2.325 billion in cash upfront. Boston Scientific, too, is currently in the process of completing a $3.4-billion deal to acquire publicly traded medical technology company Axonics.
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 bleak near-term prospects. The industry, housed within the broader Zacks Medical sector, currently carries a Zacks Industry Rank #163, which places it in the bottom 35% of more than 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform 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 and Sector
The industry has underperformed the Zacks S&P 500 composite as well as the sector in the past year.
The industry has risen 3.5% compared with the broader sector’s rise of 5.7% and the S&P 500’s surge of 25.4% in a year.
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 32.91X compared with the broader industry’s 23.25X and the S&P 500’s 21.54X.
Over the past five years, the industry has traded as high as 41.63X, as low as 26.45X and at the median of 33.06X, 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
Veracyte: San Francisco, CA-based Veracyte continues the strong growth momentum with a robust display of strength in the testing business using its established diagnostic platform. The company’s comprehensive Afirma solution’s differentiation is leading to market share gains owing to its quality and performance. The new GRID ROU tool is garnering strong interest from physicians, while the addition of TERT testing reinforces the company’s competitive position. The Decipher Prostrate test is also making strides, achieving a Level 1B designation in the updated NCCN guidelines and advancing on the reimbursement front. Veracyte’s strategic R&D investment in long-term growth projects is paying off.
The Zacks Consensus Estimate for Veracyte’s 2025 sales is pegged at $447.6 million, indicating a 10.2% rise from 2024. The consensus estimate for VCYT’s adjusted earnings is pegged at 16 cents per share, a 415% projected jump from 2024. Veracyte sports a Zacks Rank #1 (Strong Buy) currently.
You can see the complete list of today's Zacks #1 Rank stocks here.
Price and Consensus: VCYT
Hologic: Bedford, MA-based Hologic continues to witness revenue growth with recovery in procedural volumes and acceleration from new business lines. The company’s GYN Surgical business is benefiting from MyoSure Fluent Fluid Management and Laparoscopy. Its expanded global installed base of Panthers instruments represents the catalyst for sustained growth in Diagnostics. The company’s international business is driving strong top-line growth. To streamline its operations and reduce the cost of revenues, Hologic has been adopting strategies that are likely to drive future growth.
The consensus estimate for this Zacks Rank #2 (Buy) company’s 2025 sales is pegged at $4.24 billion, indicating a 5.1% rise from 2024. The consensus mark for Hologic’s 2025 EPS is pegged at $4.43, indicating an improvement of 8.5% from the year-ago period reported figure.
Price and Consensus: HOLX
Masimo: Irvine, CA-based Masimo’s focus on patient monitoring and its ongoing research and product development efforts are also impressive. A solid product suite is likely to aid Masimo in solidifying its business globally. A strong liquidity position is an added plus.
The consensus estimate for this Zacks Rank #2 company’s 2025 sales is pegged at $2.22 billion, indicating a 6.1% rise from 2024. The consensus mark for Masimo’s 2025 EPS is pegged at $3.97, indicating an increase of 9.3% from 2024.
Price and Consensus: MASI
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Hologic, Inc. (HOLX): Free Stock Analysis Report
Masimo Corporation (MASI): Free Stock Analysis Report
Veracyte, Inc. (VCYT): Free Stock Analysis Report
