Edwards Lifesciences Best Able to Withstand Medtech Slowdown, Says Analyst

Investors haven't received the message, taking the stock down 25% this year

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Aug 22, 2022
Summary
  • Overall, the industry appears well positioned to weather the economic storm.
  • Stryker and Zimmer Biomet could suffer as hip and knee replacements ease.
  • Expanded insurance coverage a big plus for industry.
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Investors do not seem convinced that Edwards Lifesciences Corp. (

EW, Financial) is well equipped to handle a downturn in the medical device industry. Despite what one analyst thinks, the Irving, California-based company has lost 25% of its value this year.

Even though medical device makers are somewhat shielded from a major economic downturn, a few companies are expected to fare better than others, Shagun Singh, an RBC Capital Markets analyst, told MedTech Dive. Edwards is likely to be one of them because the company specializes in cardiac surgeries, a procedure that cannot be postponed.

But that endorsement seemed to fly in the face of Edwards lowering its 2022 sales forecast last month, tying the reduced expectations to staffing shortages and foreign-exchange pressures. While the industry is a mixed bag, Singh still thinks there are good investment opportunities, citing the defensive nature of health care and medtech.

Companies that investors ought to be cautious about are Stryker Corp. (

SYK, Financial) and Zimmer Biomet Holdings Inc. (ZBH, Financial) because demand for their hip and knee replacement products may slow. After all, procedures can be put off for some time. Year to date, shares of the medtech powerhouses are off 12% and 24%, respectively. Despite that, the majority of analysts have the companies as buys, according to Yahoo Finance.

Two analysts are rather sanguine about the industry’s prospects. Vijay Kumar of Evercore ISI thinks that although procedures may slow if unemployment jumps, volumes would not be affected. Margaret Kaczor, a William Blair analyst, wrote in an emailed statement that even if the orthopedic procedures decelerate, “those typically are not bad, and then it just queues up more cases for later.”

One big thing working in device makers’ favor is greater insurance coverage. According to the Department of Health and Human Services, a record 35 million people had insurance under the Affordable Care Act in early 2022, and 28.7 million people were uninsured in the fourth quarter of 2021, compared with 48.2 million in 2010.

Another plus is the expansion of Medicaid, which in 39 states is now available for individuals and families that stand to lose their employer-based health care coverage.

Singh thinks diabetes care companies are especially vulnerable in a slowing economy, not because patients can go without their devices, but because they may postpone getting the newer models.

Tandem Diabetes Care Inc. (

TNDM, Financial), an insulin pump maker, pointed to recession concerns as the culprit for slowing sales. Since lowering its 2022 revenue forecast earlier this month, investors have punished the stock, taking it all the way down to about $46 from near $69. Things look even bleaker when you consider the shares traded as high as $155 at the end of 2021.

But not everyone in the space is suffering. Tandem’s primary competitor, Insulet Corp. (

PODD, Financial), bumped up its sales growth forecasts a few weeks ago and scaled up for the launch of its latest pump. So far this year, Tandem’s stock is down only about 5%.

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I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
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