Jefferies Cautious on Medical Device Names (BEC, CPHD, BLUD, ALR)

Jefferies and Company is out with a research note this morning, where it voices a cautious view on the Medical Device and Diagnostics sector of Healthcare; heading into Q2 earnings results, they anticipate weaker-than-average results from a few companies, much due to unfavorable currency trends. The Jefferies analysts said, “Our diagnostic index, which includes all 10 of our companies under coverage and then some, is down ~14.1% YTD; below both S&P Healthcare (down ~11.4% YTD) and S&P 500 (down ~6.3% YTD). Dx performance this quarter has been hindered by several high profile guide-downs due to EU austerity, FX, and weak US office visits.” They added, “US pressures on capital spending seem to be easing, but EU problems are just arriving. We look for a decent spending uptick from US hospitals and labs as capital budget worries continue to ease. We also note that a good portion of Stimulus-related NIH funds have yet to be spent, and look for a 2H10 boost to life science research spending. However, European austerity measures could have a sizable impact on EU healthcare spending in 2H10.” With regards to currency risk, they said, “In C2Q10, the average Euro/USD rate was ~6% lower than the average rate in C2Q09 and ~8% lower than the average rate in C1Q10. We suspect that USD strength will put considerable pressure on top-line growth and cause some disappointment in C2Q or in 2H guidance. Companies with substantial EU sales include Beckman Coulter Inc. BEC, Cepheid CPHD, Immucor BLUD, and Alere Inc. ALR (formerly Inverness Medical Innovations). They further noted, “We expect the key element to C2Q earnings reports will be comments by management teams on 2H10 outlook and overall business trends - especially in Europe given uncertain economic conditions. Given sizable FX headwinds, potential European healthcare spending contractions, and high unemployment rates in the US, we believe some companies under coverage could take more cautious views on their CY10 guidance.”