4 Medical Product Stocks to Buy From a Recovering Industry

The Zacks Medical – Products industry's revenues are expected to continue its growth trajectory on the back of the recovery in demand for surgeries and procedures, new products and expansion into new markets. An earlier-than-expected demand for respiratory products is also boosting sales. The industry players are raising prices of their products and services to cope with the higher costs, thereby benefiting the top and bottom lines. However, the company continues to face challenges due to supply-chain constraints, increased material costs and a shortage of workers in certain markets. Although the companies have seen a sales recovery in the past few quarters, the ongoing headwinds hurt margins. The lower demand for COVID-19-related products is having a negative impact on revenues. The budgetary constraints in U.S. hospitals and a soft Chinese market are impeding revenue growth.

Industry participants like Boston Scientific BSX, ResMed RMD, Lantheus LNTH and Haemonetics HAE have adapted to changing consumer preferences, and the majority of them are witnessing a rise in share price. These companies also carry a favorable Zacks Rank.

Industry Description

The industry includes companies providing medical products and cutting-edge technologies for healthcare services. These companies are primarily focused on research and development and cater to vital therapeutic areas like cardiovascular, nephrology and urology devices.

The recovery in the procedure volume is benefiting sales, especially that of surgery products and services. Meanwhile, cost-cutting initiatives are helping the companies to improve their bottom-line performance.

However, supply-chain disruption amid ongoing wars continues to persist, affecting the availability of certain materials used to develop medical-related products like semiconductor chips. The inflationary pressure and labor shortages weigh on the industry players' gross and operating margins. The trend is likely to persist in 2024, albeit weaker.

Major Trends Shaping the Future of the Medical Products Industry

AI, Medical Mechatronics & Robotics: The rising adoption of minimally-invasive robot-assisted surgeries, self-automated home-based care, use of IT in facilitating quick and improved patient care, and the 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. Several companies have shown substantial prowess in AI, robotics and medical mechatronics.

Advancements in robot-assisted surgical platforms continue to be crucial with respect to minimally-invasive surgeries that help reduce the 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 used to print stem cells, blood vessels, heart tissues, prosthetic organs and skin.

Rising Demand for IVD: The COVID-19 pandemic led to a rise in global demand for diagnostic testing kits in order to curb the spread of the virus. Testing became the need of the hour and led to a shift in the pipeline of IVD products, with a large number of rapid, point-of-care devices going into development. Diagnostic kit-makers not only received emergency use authorization 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 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 the government's 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 currently carries a Zacks Industry Rank #99, which places it in the top 45% 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 bright near-term prospects. 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.

Before we present a few medical product 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 declined 2.3% against the Zacks Medical sector's growth of 3.7%. The S&P 500 has increased 24.7% 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 20.3X compared with the S&P 500's 21.6X and the sector's 23.2X.

Over the last five years, the industry has traded as high as 29.8X and as low as 17.8X, with the median being at 23.1X, as the charts show.

Price-to-Earnings Forward Twelve Months (F12M)

Price-to-Earnings Forward Twelve Months (F12M)

4 Promising Medical Product Stocks

Lantheus is a radiopharmaceutical-focused company, committed to enabling clinicians to Find, Fight and Follow disease to deliver better patient outcomes. Its commercial products are used by oncologists, urologists, nuclear medicine physicians, cardiologists, sonographers, technologists, radiologists and internal medicine physicians working in a variety of clinical settings.

The company produces and markets its products across the United States, dealing primarily with hospitals, independent diagnostic testing facilities, government facilities and radiopharmacies, among others. Outside the United States, it sells its products via a combination of direct distribution in Canada and third-party distribution relationships in Europe, Canada, Australia, Asia-Pacific, Central America and South America.

Lantheus' leadership in the radiopharmaceuticals market, with PYLARIFY dominating PSMA PET imaging for prostate cancer, looks promising. Regulatory advancements, like the Centers for Medicare and Medicaid Services' proposed changes for diagnostic radiopharmaceutical payments, could further influence the sector. Lantheus is expanding its pipeline with promising assets like PNT2002 and PNT2003 alongside strategic collaborations to enhance its portfolio.

However, Lantheus is facing macroeconomic uncertainties and inflationary pressures, thereby raising concern. Its dependence upon third parties and Mo-99 is also worrisome. Risky commercialization programs and reimbursement headwinds are other challenges faced by Lantheus. During the first-quarter earnings call, LNTH stated that it expects full-year revenues to be in the range of $1.50-$1.52 billion and adjusted EPS in the band of $7.00-$7.20.

For this Billerica, MA-based company, the Zacks Consensus Estimate for 2024 revenues implies an improvement of 17.2% year over year. The consensus estimate for earnings indicates a rise of 14.1%. Lantheus delivered a trailing four-quarter average earnings surprise of 13.61%. Presently, the company sports a Zacks Rank #1 (Strong Buy).

Price and Consensus: LNTH

Haemonetics provides blood management solutions to customers encompassing blood and plasma collectors, hospitals and health care providers globally. The company's portfolio of integrated devices, information management, and consulting services offers blood management solutions for each facet of the blood supply chain.

Haemonetics' consistent growth performance over the past few quarters reflects its strategic focus on establishing leading positions in high-growth markets to generate solid financial returns. Strong momentum in U.S. collections and prices drove the robust volume growth and price benefits in the Plasma business. The rollout of Persona technology continued to gain momentum, with more than 25 million collections. The continued momentum in the Hospital business with new account openings and improving utilization throughout the United States is encouraging.

However, uncertainty around inflationary pressures, rising interest rates and macroeconomic conditions have increased the risk of creating new or exacerbating existing economic challenges Haemoentics face. While HAE implemented cost containment measures, selective price increases and other actions to offset these inflationary pressures in its global supply chain, the company may not be able to offset all the increases in its operational costs completely. For 2025, it expects total GAAP revenue growth in the range of 5-8% on a reported basis. Organic revenue growth, too, is anticipated in the band of 0-3%. HAE expects full-year 2025 adjusted EPS to be in the range of $4.45-$4.75. Currently, HAE sports a Zacks Rank #1.

For this Kalamazoo, MI-based company, the Zacks Consensus Estimate for 2024 revenues is pegged at $1.39 billion. The consensus mark for earnings is pinned at $4.57 per share. The company delivered a trailing four-quarter average earnings surprise of 13.2%.

 

Price and Consensus: HAE

Boston Scientific manufactures medical devices and products used in various interventional medical specialties worldwide. The company has adopted organic as well as inorganic routes for success. It generates revenues from the sale of Medical Devices reported under two segments — MedSurg and Cardiovascular. Boston Scientificis one of the leading players in the interventional cardiology market with its coronary stent product offerings.

BSX successfully continues with its expansion of operations across different geographies outside the United States. Within its international regions, the company is putting additional efforts to expand its foothold in emerging markets that hold strong growth potential. In the first quarter of 2024, despite geopolitical weaknesses, emerging markets registered sturdy growth, primarily on the back of continued broad-based momentum across BSX's business and investment in this region.

Strong worldwide demand for its Electrophysiology and Structural Heart lines, traction in Europe for its next generation WATCHMAN FLX, as well as contributions from accretive acquisitions are important growth drivers. The Pain and Brain franchisees are expected to gain solid traction in 2024 on the back of strong execution of core growth strategies. The Electrophysiology arm received a strong boost on the FDA approval for FARAPULSE.

However, mounting costs due to worldwide geopolitical issues are major concerns. FX headwinds continue to largely offset the company's performance. Full-year net sales growth is expected to be approximately 11-13% on a reported basis and 10-12% on an organic basis. Full-year adjusted EPS is expected to be in the range of $2.29-$2.34.

For this Natick, MA-based company, the Zacks Consensus Estimate for 2024 revenues indicates a year-over-year improvement of 12.3%. The consensus estimate for earnings indicates growth of 13.2%. It delivered a trailing four-quarter earnings surprise of 7.49%, on average. Presently, the company carries a Zacks Rank #2 (Buy).

Price and Consensus: BSX

ResMed holds a major position as the designer, manufacturer and distributor in the worldwide market for generators, masks, and related accessories for the treatment of sleep-disordered breathing (SDB) and other respiratory disorders. SDB includes obstructive sleep apnea and other respiratory disorders that occur during sleep.

ResMed benefits from the global supply of its cloud-connected platforms, AirSense10 and AirSense11. The strong uptake of the myAir app with Air 11 is likely to drive higher adherence to therapy in patients. The company continues to see strong growth in the U.S. mask and accessories business, where resupply programs are powered by a digital health ecosystem, including AirView for physicians, Brightree for home care medical equipment providers and myAir for patients. The MEDIFOX DAN business in Germany contributes to the robust organic growth of the SaaS business, raising optimism.

However, ResMed has been witnessing increased operating expenses over the past few quarters. A balance sheet with a high debt burden is worrisome.

For this San Diego, CA-based company, the Zacks Consensus Estimate for fiscal 2024 revenues indicates a year-over-year improvement of 10.5%. The consensus estimate for earnings indicates growth of 19.6%. The company delivered a trailing four-quarter earnings surprise of 2.81%, on average. Presently, it carries a Zacks Rank #2.

Price and Consensus: RMD

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