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4 Stocks to Watch Amid Recovering Medical Products Industry

·9-min read

The COVID-19 pandemic, which turned out to be a biological crisis of unprecedented nature, has altered the very nature and dynamics of the healthcare industry. The Zacks Medical – Products industry bore the brunt of widespread supply chain disruptions and deferral of elective procedures. However, the medical products space has experienced substantial recovery, primarily owing to the easing of prior restrictions and ramped-up vaccinations. Apart from this, the slow resumption of elective procedures, rising demand for in vitro diagnostics (IVD) and increasing dependence on artificial intelligence (AI) and robotics are likely to drive the industry participants in the days ahead.
Despite the pandemic-induced disruption, particularly in the first half of 2022, the industry players have not shown signs of slowing down yet. Industry participants like Zimmer Biomet ZBH, Bio-Rad Laboratories, Inc. BIO, Lantheus LNTH and Haemonetics HAE are likely to gain from the abovementioned factors.

Industry Description

The industry comprises companies that provide 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 devices, nephrology and urology devices, to name a few. Diagnostic testing stocks, which had registered a slowdown in demand for COVID-19 testing, picked up momentum in 2022. However, lockdown across several countries, notably China, in the first half of 2022 amid rising COVID-19 cases led to significant supply chain disruptions. Recent inflationary pressure and supply-chain issues are weighing on the gross and operating margins of the industry players. The trend is likely to continue for the rest of 2022.

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 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 the rise in global demand for diagnostic testing kits in order to curb the spread of the virus. The need of the hour became testing 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 #154, which places it in the bottom 39% 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 lost 44.5% compared with the Zacks Medical sector’s decline of 20.2%. The S&P 500 has gained 3.3% in the same 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 22.4X compared with the S&P 500’s 18.68X and the sector’s 21.72X.

Over the last five years, the industry has traded as high as 30.17X and as low as 17.68X, with the median being at 20.22X, as the charts below show.

Price-to-Earnings Forward Twelve Months (F12M)

Price-to-Earnings Forward Twelve Months (F12M)

4 Promising Medical Products Stocks

Lantheus: Lantheus is involved in developing, manufacturing, selling and distributing diagnostic medical imaging agents and products for diagnosing cardiovascular and other diseases. It serves hospitals, clinics, group practices, integrated delivery networks, group purchasing organizations, radio pharmacies and wholesalers. The company reported robust top and bottom-line growth for the second quarter on the back of its key product, Pylarify — the PSMA PET imaging agent of choice. Strong quarterly results led the company to raise its revenues and adjusted earnings guidance by 9.5% and 17.4% respectively, as measured at the midpoint of the earlier and new guided ranges. Currently, the company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

For this North Billerica, MA-based company, the Zacks Consensus Estimate for fiscal 2022 revenues suggests growth of 111.8%. The consensus mark for earnings indicates an improvement of 528.6%. It has a trailing four-quarter earnings surprise of 54.6%, on average.

Price and Consensus: LNTH

Bio-Rad Laboratories, Inc.: Bio-Rad Laboratories is a manufacturer and global supplier of clinical diagnostics and life science research products in healthcare, analytical chemistry, life science research and other markets. The company reported market-beating top and bottom-line performance in the second quarter of 2022. However, revenues were hurt by unfavorable currency movement. On a currency-neutral basis, sales improved, reflecting an elevated level of demand particularly in Asia as a result of the ongoing outbreaks in China. Overall, demand for both Life Science and Clinical Diagnostics continued to be strong on localized surges of COVID-19. China in particular drove higher-than-expected PCR instrument demand. However, the lockdown in China had a negative impact on local sales during the quarter. Meanwhile, foreign-exchange woes and pandemic-led macroeconomic troubles are likely to continue in 2022.

For this Hercules, CA-based company, the Zacks Consensus Estimate for 2022 revenues suggests a decline of 2.6%. The consensus mark for earnings indicates a decrease of 8.8%. The Zacks Consensus Estimate for 2023 revenues and earnings suggests growth of 7.8% and 9.6%, respectively. It has a trailing four-quarter earnings surprise of 46.75%, on average. Presently, the company carries a Zacks Rank of 2 (Buy).

Price and Consensus: BIO

Haemonetics: Haemonetics provides blood management solutions to customers encompassing blood and plasma collectors, hospitals and health care providers globally. Haemonetics ended the fourth quarter of fiscal 2022 with better-than-expected earnings and revenues. During the quarter, the company registered year-over-year growth in revenues driven by recovery across businesses. The robust performance in the Hospital business on continued strength in Hemostasis Management product line buoys optimism. Strong customer end-market demand for NexSys PCS system with Persona technology is encouraging. Robust contributions from the Vascular Closure business also seem promising. However, the year-over-year decline in the company’s Blood Center businesses raises apprehension.

For 2023, the company expects GAAP total revenue growth in the range of 8-11% on a reported basis following the fiscal first-quarter results (up from the prior projection of 5-9%). Organic revenue growth is currently expected in the range of 10-14%. The company also raised the lower band of its guidance for adjusted earnings from $2.50 - $2.90 to $2.60-$2.90.

For this Boston, MA-based company, the Zacks Consensus Estimate for fiscal 2023 revenues suggests growth of 9.2%. The consensus estimate for earnings indicates an improvement of 7.4%. It has a trailing four-quarter earnings surprise of 6.25%, on average. Presently, the company carries a Zacks Rank of 2.

Price and Consensus: HAE

Zimmer Biomet: Zimmer Biomet is a leading musculoskeletal healthcare company that designs, manufactures and markets products like orthopedic reconstructive products, sports medicines, trauma products and dental implants among others. In spite of a difficult macro-economic scenario in the second quarter, Zimmer Biomet posted better-than-expected earnings and revenues. Each of the company’s geographic segments and product divisions, barring “other” recorded year-over-year sales growth at CER. Revenues were driven by continued execution along with strong COVID recovery across most markets.

According to the company, strong procedure volume recovery extended from the first quarter, especially as Zimmer Biomet moved into April and May, with a moderation of recovery in June. U.S. sales grew 1.3%, driven by a strong recovery in execution as COVID cases subsided and elective procedures returned, especially in knee and hips. The company’s strategic acquisitions, focus on emerging markets to drive growth, strong balance sheet position and stabilizing market trend bolster our confidence in this stock. Yet, factors like macroeconomic uncertainties, pricing pressure and unfavorable currency fluctuations have been adversely impacting Zimmer Biomet's business. On the second-quarter earnings call, Zimmer Biomet raised its adjusted EPS guidance for the full year from $6.65-$6.85 to $6.70-$6.90. The company carries a Zacks Rank #3 (Hold).

For this Warsaw, IN-based company, the Zacks Consensus Estimate for 2022 revenues indicates a decline of 12.7 and the same for earnings suggests a decline of 8%. The Zacks Consensus Estimate for 2023 revenues and earnings suggests growth of 3.3% and 4.6%, respectively. It has a trailing four-quarter earnings surprise of 7.4%, on average. Shares of the company have outperformed the industry in the past year.

Price and Consensus: ZBH

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Zimmer Biomet Holdings, Inc. (ZBH) : Free Stock Analysis Report
Haemonetics Corporation (HAE) : Free Stock Analysis Report
BioRad Laboratories, Inc. (BIO) : Free Stock Analysis Report
Lantheus Holdings, Inc. (LNTH) : Free Stock Analysis Report
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