Zacks Industry Outlook Highlights Alcon, Hologic and Penumbra
For Immediate Release
Chicago, IL – July 25, 2023 – Today, Zacks Equity Research discusses Alcon ALC, Hologic, Inc. HOLX and Penumbra PEN.
Industry: Medical Instruments
Link: https://www.zacks.com/commentary/2125940/3-medical-instruments-stocks-to-buy-amid-improving-industry-trends
The Medical Instruments industry is gradually coming out of the two-and-a-half-year long healthcare crisis-oriented development approach. The key focus of medical device R&D is again transforming from COVID-related PPE, testing and distant care options to point-of-care testing, heavy as well as minimally invasive implants, elective procedures, so on and so forth. Meanwhile, AI and robotics for medical Internet of Things (IoT), which rose to the limelight during the pandemic phase, continue to be popular.
Observation says that digital enhancement, while optimizing costs, proves to be better for clinical outcomes. However, deteriorating international trade, with global inflationary pressure leading to a tough situation related to raw material and labor cost as well as freight charges, has put the industry in a tight spot again. Further, the industry-wide trend of staffing shortages and supply chain-related hazards are denting growth. Meanwhile, industry players like Alcon, Hologic, Inc. and Penumbra 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-hit 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
M&A Trend Continues: The medical instruments space has been benefiting from the ongoing merger and acquisition (M&A) trend. In fact, various reports suggest that M&A has been the key catalyst in the U.S. MedTech space of late. 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. In 2022, the MedTech space faced a slowdown in terms of M&A compared to the previous years. It only had 11 mega deals. However, market watchers expect the M&A scenario to rebound in 2023 despite the volatile economic situation. Among the significant deals of recent times, in April 2023, Abbott acquired Cardiovascular Systems at a total expected equity value of approximately $890 million.
In February, Globus Medical made a $3.1 billion deal to acquire spine technology company, NuVasive. Medtronic is also divesting and restructuring its divisions for future acquisitions. In May, the company announced the acquisition of insulin patch pump maker EOFlow. Meanwhile, General Electric Company announced the completion of the spinoff of its healthcare business to create a new player in the field of precision care, GE HealthCare.
Business Trend Disruption: Considering the ongoing macroeconomic situation, the IMF came up with its April 2023 World Economic Outlook Update. Per the baseline forecast, growth is expected to decelerate from 3.4% in 2022 to 2.8% in 2023 before settling at 3% in 2024. IMF expects developed economies to see an especially pronounced slowdown in growth, from 2.7% in 2022 to 1.3% in 2023. IMF specifically noted that the global headline inflation in the baseline is going to fall from 8.7% in 2022 to 7% in 2023 due to lower commodity prices.
However, underlying (core) inflation is likely to decline more slowly. Inflation’s return to target is unlikely before 2025 in most cases. On a brighter note, strengthening household balance sheets and wage growth are driving private demand. Overall, Medical Instruments industry players are expected to collectively report a year-over-year decline in their revenues due to logistical challenges and increasing unit cost. This might get offset by an increase in essential and non-essential product demand by private households.
Digital Revolution: With an increase in the adoption of digital platforms within the medical device space, robotic surgeries, big-data analytics, bioprinting, 3D printing, electronic health records (EHR), predictive analytics, real-time alerting and revenue cycle management services are gaining prominence in the United States. A June 2019 Health Care News report suggested that this market, valued at $123 billion in 2018, has been witnessing a CAGR of 25%. Various other reports suggest that companies that adopted AI witnessed a 50% reduction in treatment costs. Telemedicine stocks received an impressive response when, in 2021, the Centers for Disease Control and Prevention asked healthcare service communities to broaden the use of telemedicine.
Zacks Industry Rank Indicates Improving 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 bright near-term prospects. The industry, housed within the broader Zacks Medical sector, currently carries a Zacks Industry Rank #83, which places it in the top 33% of more than 250 Zacks industries. 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.
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, Outperforms Sector
The industry has underperformed the Zacks S&P 500 composite but outperformed its sector in the past year.
The industry has improved 8% compared with the S&P 500’s 16.3% rise in a year’s time. The broader sector has declined 1.7% in the said time frame.
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 34.99X compared with the broader industry’s 23.02X and the S&P 500’s 19.99X.
Over the past five years, the industry has traded as high as 44.57X, as low as 26.24X and at the median of 33.77X.
3 Stocks to Buy Right Now
Alcon: Headquartered in Geneva, Switzerland Alcon researches, develops, manufactures, distributes, and sells a full suite of eye care products. In Presbyopia-correcting Intraocular Lens (PCIOLs), Alcon currently leads the market with over 60% of the global share and over 80% share in the United States. In Surgical, the company maintained strong market share in PCIOLs, solidifying its market leading position, driven by strong demand for products like PanOptix and Vivity despite new market entrants.
The consensus estimate for this Zacks Rank #1 (Strong Buy) company’s 2023 sales is pegged at $9.35 billion, indicating an 8.1% rise year over year. The consensus mark for Alcon’s 2023 EPS is pegged at $2.64, indicating an increase of 17.9% from the year-ago period reported figure.
You can see the complete list of today's Zacks #1 Rank stocks here.
Hologic: Headquartered in Bedford, MA, Hologic develops, manufactures, and supplies diagnostics, medical imaging systems and surgical products, which cater to the healthcare needs of women. Hologic has been making impressive progress in its Breast Health arm in recent times. The company is currently focusing on expanding its strategy to diversify its business across the patient continuum of care. The company’s GYN Surgical business transformed into the most profitable division of Hologic on a percentage basis, banking on strong strategic execution of new commercial models and new product launches.
The consensus estimate for this Zacks Rank #1 company’s fiscal 2024 sales is pegged at $4.15 billion, indicating a 3.7% rise year over year. The consensus mark for Hologic’s fiscal 2024 EPS is pegged at $4.09, indicating an increase of 5.1% from the year-ago period reported figure.
Penumbra: Headquartered in Alameda, CA, Penumbra, as a global healthcare company, designs, develops, manufactures and markets innovative products for use by specialist physicians and healthcare providers to drive improved clinical and health outcomes. The company’s vascular and neuro product categories are showing encouraging growth trends. Strong uptake following the launch of Lightning Flash during the first quarter of 2023 accelerated the growth of the Vascular business. Penumbra’s Immersive Healthcare business, too, is making significant progress.
The Zacks Consensus Estimate for Penumbra’s 2023 sales is pegged at $1.05 billion, indicating a 24.1% rise year over year. The same for PEN’s adjusted earnings is pegged at $1.56 per share, a huge projected improvement from 16 cents of earnings in 2022. Penumbra carries a Zacks Rank #2 (Buy).
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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