Whereas permitting that medtech has underperformed the S&P 500 for 3 straight years, Baird mentioned it likes the sector’s setup shifting into 2024, pointing to fading issues in regards to the influence of GLP-1 medication, “stable” topline fundamentals and bettering margins.
The funding financial institution mentioned it believes valuations have began to “higher embed” issues about GLP-1s, the upcoming US elections, and macroeconomic points. It famous that medtech is mostly not as impacted by elections as different healthcare subsectors and is commonly seen as a defensive play in instances of macroeconomic uncertainty.
“If traders give attention to high-quality names with robust new product cycles and (hardly ever seen in MedTech) pricing energy, we imagine there’s out-performance available,” the analysts wrote of their observe.
Baird additionally sees margin restoration rising in 2024, helped by new product launches, improved pricing energy and elevated normalization of provide chains.
The funding agency mentioned that Alcon, Stryker and Cooper “sit on the prime of our checklist” as a result of all of them have product cycles and pricing energy.
Baird mentioned that whereas Alcon shares weren’t low cost, it believes issues about AT-IOLs, or Superior Know-how Intraocular Lenses, and cataract volumes “appear overdone.”
“We stay large followers of Alcon’s contact lens co-specific cycle and the sustainability of contact lens pricing tailwinds extra typically, and we imagine 2024 can be a robust yr for margin enchancment,” the analysts wrote.
Baird additionally likes contact lens maker Cooper for related causes, however prefers Alcon’s surgical to CooperSurgical. It additionally believes Alcon will see larger margin growth in 2024 than Cooper.
As for Stryker, Baird believes the corporate’s margins will profit in 2024 from “premium” costs tied to its MedSurg product launches. It additionally sees “stable orthopedic end-market demand tendencies and continued robot-driven core ortho share good points.”
The funding financial institution additionally has “excessive conviction” in FY 2024 and FY 2025 for income/revenue upside from Boston Scientific and Axonics.
Baird mentioned that Axonics “carries the most effective, bettering and sustainable constructive revenue outlooks into FY 2024 and past.” The funding financial institution sees upside to its 23% development estimate, with Axonics gaining share within the US sacral neuromodulation market. Baird added that the corporate was “rising as a CNS lengthy.”
As for Boston Scientific, Baird sees new “significant” product launches positioning the corporate for accelerating income development into 2025. It added that margin enhancements ought to “assist BSX’s premium valuation.”
Baird mentioned that Encourage Medical Techniques (INSP) and Intuitive Surgical (ISRG) “narrowly missed” its prime picks checklist because of valuation and “potential near-term headline threat.” The funding agency, nonetheless, stays “assured in long-term outlooks and could be consumers on any pullbacks.”