Despite the concerns over the struggles of politicians to craft a new health care plan for the United States, the health care sector, and many of its subsectors, have had an outstanding first half to 2017. That comes as no surprise to some on Wall Street as the sector faced some bitter political rhetoric during the campaign season last year and was clearly out of favor. Medical technology had a second strong quarter in a row, up a stunning 13.2%, versus 5.5% for the S&P 500.
A new report from the medical technology team at RBC warns that the premium in the group has jumped considerably due to the strong performance, and the top companies need to beat guidance and consensus to continue their solid runs. The analysts noted this in their recent report:
While the MedTech index was trading at a 5% discount to S&P 500 at the start of the year, it now trades at a 5% premium, a 10-percentage point swing in the space of six months. The premium peaked in early July 2016, before the second quarter 2016 reporting season started, and then nose-dived in the next six months. MedTech needs support from a strong earnings season to avoid a similar outcome this year.
The RBC analysts do remain very positive on three top companies that they feel have the ability to beat earnings estimates and raise guidance going forward. All three are rated Outperform.
This top medtech company has remained on a slow and steady grind higher over the past five years. Boston Scientific Corp. (NYSE: BSX) develops, manufactures and markets medical devices that are used in interventional cardiology, peripheral interventions, vascular surgery, electrophysiology, neurovascular interventional, oncology, endoscopy, urology, gynecology and neuromodulation.
The analysts noted in their report that the company is a benefactor of the weakening U.S. dollar, and despite the company tapping the brakes on slower revenue growth, they remain positive. The report also said this:
Boston Scientific needs to beat second quarter earnings-per-share guidance and raise full year forecast for the stock to move higher near-term. The company’s shares rose 28.2% in the first half of 2017, and were the third best-performing large-Cap MedTech stock we track. Longer-term, we believe the shares can touch $40 by the end of the decade.
The RBC price target for the stock is set at $31, and the Wall Street consensus price objective is $30.39. The stock closed trading on Monday at $27.56 per share.
This company pioneered the artificial heart valve, and it could be poised for big growth. Edwards Lifesciences Corp. (NYSE: EW) provides products and technologies to treat structural heart disease and critically ill patients worldwide. The company offers transcatheter heart valve therapy products, comprising transcatheter aortic heart valves and their delivery systems for the nonsurgical replacement of heart valves.
The company also provides surgical heart valve therapy products, such as pericardial valves for aortic and mitral replacement, and minimally invasive aortic heart valve system, as well as tissue heart valves and repair products, which are used to replace or repair a patient’s diseased or defective heart valve.
Top Wall Street analysts feel that the company’s acquisition of privately held CardiAQ last year made good sense going forward. CardiAQ has human implants of transcatheter mitrial valves, and Edwards is focused on the mitrial valve opportunity after its very strong success in aortic valves. The company also has had tremendous success with transcatheter valve replacement. Transcatheter heart valve replacements are rapidly gaining favor in the medical community for use in those patients who are deemed unsuited for open heart surgery, and they are a fast growing revenue stream for the company.