Medical device makers, like many manufacturers, have faced challenges over the past year from bloated supply chain costs, staff shortages and a strong dollar affecting sales abroad. But the new year brought a more positive tone from companies in the sector, even as big tech companies and others announced layoffs and sounded the alarm about a potential recession. “Based on feedback, the broader environment appears to be gradually improving, and pre-announcements for the fourth quarter were mostly above consensus,” KeyBanc Capital Markets analyst Matthew Mishan wrote in a note to clients. “We continue to believe in MedTech’s investment thesis of relatively stagnant flexible sales.” The sector is emerging from its worst decline since the financial crisis in 2008. The iShares US Medical Devices ETF (IHI) fell more than 20% last year, underperforming the S&P 500. However, since 2007, the average The hardware ETF gained 14% annually, 6 percentage points better than the broader market index over the same period. Against this background, CNBC Pro examined medical device companies valued at more than $1 billion, that have Buy ratings from at least 60% of the analysts who cover them, plus an average price target that means a gain of 30% or more. during the next year. Seven companies met the criteria. Many of them have raised their expectations this month. One notable name was Paragon 28, a maker of small-cap devices that went public in 2021. The company specializes in coating systems and bone grafting for ankle and orthotic problems. Although not widely followed, the six analysts who covered the stock price are a Buy, according to FactSet. The average price target indicates an upside of approximately 50% over the next 12 months. “We believe Paragon 28 is hitting its growth streak and is positioned to participate in the fastest-growing segment of the orthopedic market,” Canaccord Genety analyst Kyle Rose said in a note to clients earlier this month. The company previously reported better-than-expected fourth-quarter sales of $51.2 million – $51.5 million, representing 20% year-over-year growth. Shockwave Medical also raised its outlook for 2022, and strengthened its 2023 sales guidance as well. The maker of catheters used to treat hardened arteries told analysts last week that it’s confident one of its flagship products will garner Medicare’s highest reimbursement rate of $17,000 in the coming months; The company is in discussions with the Centers for Medicare and Medicaid. Over 60% of analysts rate the stock a Buy, with a median price target pointing to an upside of 34%. But Suraj Kalia of Oppenheimer isn’t buying the bull case on Shockwave. The stock has a sell rating. “Our analyzes indicate that their devices are no better than the cheap or cheap ones already on the market. They haven’t explained why they are better or why they should be more expensive,” Kalia told CNBC. A highlight of the list is Procept BioRobotics, which makes surgical robots to treat urological conditions. Nearly 90% of analysts rate the stock a Buy, with an average price target of $53, implying an upside of 30%. Earlier this month, the company pre-announced preliminary full-year 2022 sales of about $75 million, more than tenfold more than 2020 sales. The prostate is experiencing strong growth. “We have a long way to go. Patients are now asking for this procedure, because they want both efficacy, safety and durability,” Zadno said. BTIG analysts Mary Thibault and Ryan Zimmerman believe that mergers and acquisitions could be another catalyst for the medical device sector in 2023, with robotic surgery players likely to be of particular interest. “There are a number of emerging surgical robotics companies and although many are unproven, companies like Medtronic and J&J are finding it more difficult to participate in the ISRG space. We believe MDT and JNJ can pick up some assets to either consolidate or strengthen their position in surgical robotics. BTIG analysts said in a research note.
Medical device stocks tend to outperform the market, and analysts expect these names to see significant gains