The stock market has been plunging, with the S&P 500, Nasdaq Composite, and the Dow Jones Industrial Average all entering deep correction territory. Decade-high inflation is primarily to blame for this scenario. And the supply disruptions resulting from the geopolitical issues have been one of the key reasons behind the inflation.
Investors are worried about the Fed’s aggressive interest rate hikes to bring prices down. Inflation is currently at multi-decade highs, and the April jobs data suggested a tight labor market. Many analysts expect the Fed’s aggressive monetary policy tightening could drive the economy into recession.
Also, the Russia-Ukraine war has entered its third month, with no signs of easing the conflict between the countries. As a result, supply disruptions continue to worsen, and energy and commodity prices remain at uncomfortably high levels. Crude oil prices are consistently hovering over $100. And historically, high crude oil prices have precipitated recessionary conditions.
The medical device industry is largely impervious to recession, as the non-elective surge demands remain unaffected by the economic cycles. Moreover, the demand for quality healthcare is driving the growth of medical device manufacturers.
This is why today I’m going to analyze three prominent medical device stocks: Becton Dickinson and Company (BDX), Medtronic plc (MDT), and Zimmer Biomet Holdings, Inc. (ZBH).
Click here to checkout our Healthcare Sector Report for 2022
Medical Devices: A Defensive Industry That’s Recession Resistant
According to WHO, a medical device can be any instrument, apparatus, implement, machine, appliance, implant, reagent for in vitro use, software, material, or similar or related article, intended by the manufacturer to be used, alone or in combination for a medical purpose. Unlike a pharmaceutical or biological solution, a medical device uses mechanical action to cure, treat or diagnose disease.
Medical devices can range from something as simple as tongue depressors, bandages, bedpans, and handheld surgical instruments to in vitro diagnostic (IVD) products, Computed Tomography (CT) scanners, pacemakers, ultrasound devices, and others.
The medical devices industry had suffered during the peak pandemic months as patients had to delay elective surgeries due to high occupancy at hospitals to treat COVID-19. However, the industry soon bounced back as solid progress was made in vaccinating the population. Also, the growing demand for critical surgical procedures helped the industry make a strong comeback.
The medical devices industry is not as affected during recessions, compared to other industries, as medical devices are indispensable for non-elective surgeries. People’s spending on healthcare is less likely to be affected by macroeconomic headwinds as diseases will always exist, and treatments and medicines will always be in demand irrespective of economic turbulence. Non-elective procedures cannot be pushed back during an economic slowdown. Hence the demand for medical devices remains stable.
People are more likely to curtail their discretionary spending than cut down on medical expenses. The demand for medical devices will be fueled by the need for quality healthcare, chronic diseases, and a consistent increase in the aging population. The medical devices industry’s long-term growth will depend on continued product innovations, integration of new technologies for enhanced precision and accuracy, and increased robotic assistance in operating rooms.
According to a Mordor Intelligence report, the medical devices market is expected to grow at a CAGR of 5.5% to reach $734.39 billion by 2027.
Prominent Industry Participants
Abbott Laboratories (ABT) and Stryker Corporation (SYK) are two major industry participants. While ABT has lost 10.2% over the past year, SYK has declined 10.2% over the past nine months. ABT has a market capitalization of $186.91 billion, while SYK has a market cap of $86.03 billion.
ABT’s Chair and CEO Robert B. Ford said, “Technology gives us the power to digitize, decentralize and democratize healthcare, create a shared language between you and your doctor – and put more control of your health in your hands. We’re creating a future that will bring you and your loved ones care that’s more personal and precise. It’s happening right now. And its potential is no less than incredible.”
3 Medical Devices Stocks to put on the Watchlist
Becton Dickinson and Company (BDX)
BDX is a medical technology company engaged in developing, manufacturing, and selling medical supplies, devices, laboratory equipment, and diagnostic products. The company operates through the BD Medical, BD Life Sciences, and BD Interventional business segments.
Analysts expect BDX’s EPS for the quarter ending September 30, 2022, to increase 35.3% year-over-year to $2.91. Its revenue for fiscal 2023 is expected to increase 3.8% year-over-year to $19.85 billion. Over the past nine months, the stock has gained 4.8% to close the last trading session at $250.10.
In terms of trailing-12-month Capex/S, BDX’s 5.73% is 32.5% higher than the industry average of 4.32%. Also, its trailing-12-month EBIT margin and EBITDA margin of 14.68% and 26.03% are higher than the industry averages of 1.06% and 3.83%, respectively.
BDX’s strong fundamentals are reflected in its POWR Ratings. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has a B grade for Growth and Stability. It is ranked #46 out of 153 stocks in the Medical – Devices & Equipment industry. Click here to see the other ratings of BDX for Value, Momentum, Sentiment, and Quality.
Medtronic plc (MDT)
Headquartered in Dublin, Ireland, MDT develops, manufactures, distributes, and sells device-based medical therapies to hospitals, physicians, clinicians, and patients worldwide. It operates through four segments: Cardiovascular Portfolio, Neuroscience Portfolio, Medical-Surgical Portfolio, and Diabetes Operating Unit.
For fiscal 2022, MDT’s EPS and revenue are expected to increase 27.5% and 6.4% year-over-year to $5.66 and $32.04 billion, respectively. It surpassed consensus EPS estimates in each of the trailing four quarters. The stock has lost 3% year-to-date to close the last trading session at $100.31.
In terms of trailing-12-month gross profit margin, MDT’s 68.27% is 23% higher than the industry average of 55.47%. Also, its trailing-12-month EBIT margin and EBITDA margin of 21.73% and 30.23% are higher than the industry averages of 1.06% and 3.83%, respectively.
MDT’s POWR Ratings reflects this promising outlook. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It has a B grade for Stability. Within the same industry, it is ranked #16. To see the other ratings of MDT for Growth, Value, Momentum, Sentiment, and Quality, click here.
Zimmer Biomet Holdings, Inc. (ZBH)
ZBH operates in the musculoskeletal healthcare business in the Americas, Europe, the Middle East, Africa, and the Asia Pacific. The company designs, manufactures, and markets orthopedic reconstructive products. It also offers dental products that include dental reconstructive implants, dental prosthetics, regenerative effects, and robotic, surgical, and bone cement products. Its products and solutions are used to treat patients suffering from disorders, or injuries to, bones, joints, or supporting soft tissues.
Analysts expect ZBH’s EPS and revenue for fiscal 2023 to increase 6.6% and 3.7% year-over-year to $7.14 and $7.09 billion, respectively. It surpassed Street EPS estimates in three of the trailing four quarters. Over the past three months, the stock has lost 0.9% to close the last trading session at $114.17.
In terms of trailing-12-month gross profit margin, ZBH’s 70.08% is 26.3% higher than the industry average of 55.47%. Also, its trailing-12-month EBIT margin and EBITDA margin of 16.47% and 29.96% are significantly higher than the industry averages of 1.06% and 3.83%, respectively.
ZBH’s strong fundamentals are reflected in its POWR Ratings. It has a B grade for Growth and Sentiment. Again, it is ranked #32 in the same industry. Click here to see the other ratings of ZBH for Value, Momentum, Stability, and Quality.
BDX shares were trading at $255.21 per share on Wednesday morning, up $5.11 (+2.04%). Year-to-date, BDX has gained 4.43%, versus a -14.81% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More…
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