Increased capital investments and rapid technology integration have helped the medical devices industry to grow substantially over the past year. And as the economy recovers from the COVID19 pandemic, aided by a strong vaccination drive, non-emergency medical procedures are being rescheduled, driving up the nationwide demand for medical devices.
With breakthrough capabilities and tech integration, state-of-the-art medical devices are expected to drive the global healthcare industry’s growth. The medical devices sector is expected to grow at a 5.2% CAGR to $671.49 billion by 2027.
Investors are bullish on the medical devices industry, as evidenced by the SPDR S&P Health Care Equipment ETF’s (XHE) 37.6% gains over the past year versus the broader SPDR S&P 500 ETF Trust’s (SPY) 33.7% returns. Thus, we think fundamentally sound stocks in this space ResMed Inc. (RMD), Alcon Inc. (ALC), Terumo Corporation (TRUMY), and West Pharmaceutical Services, Inc. (WST), are expected to keep soaring in price.
ResMed Inc. (RMD)
RMD manufactures medical equipment and software to treat patients afflicted with Sleep Apnea and other chronic diseases. The company operates in two segments—the sleep and respiratory care segment and the software-as-a-service segment. RMD is headquartered in San Diego, Calif.
In August, RMD launched its next-generation Positive Airway Pressure (PAP) device for sleep apnea patients. The device has features such as a personal therapy assistant and remote software up-gradation. This digital health device can be expected to generate greater revenue for RMD.
On September 8, an ALASKA study conducted in France reported that using RMD’s PAP treatment can increase the chance of survival for sleep apnea patients. This study reflects how important it is to diagnose and treat sleep apnea for a large base of customers.
In the fourth fiscal quarter, ended June 30, RMD’s net revenue increased 13.7% year-over-year to $876.10 million. Its non-GAAP income from operations rose 7% from the prior-year quarter to $260.40 million. The company’s non-GAAP net income increased 2.7% from its year-ago value to $198.45 million, while its non-GAAP EPS came in at $1.35, up 1.5% from the same period last year.
A $1.36 consensus EPS estimate for the current quarter (ending September 2021) indicates a 7.1% year-over-year increase. Likewise, the $866.33 million consensus revenue estimate for the current quarter reflects a 21.9% rise from the prior-year quarter. Furthermore, RMD has an impressive surprise earnings history; it has topped the consensus EPS estimates in all four trailing quarters. RMD’s stock has gained 68% in price over the past year to close yesterday’s trading session at $288.90.
RMD’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
RMD has a B grade for Stability, Sentiment, and Quality. It is ranked #18 of 182 stocks in the Medical – Devices & Equipment industry. We have also graded RMD for Growth, Value, and Momentum. Click here to access all RMD’s ratings.
Alcon Inc. (ALC)
ALC provides innovative technologies and equipment for eye care. Its products are categorized into two segments: Surgical and Vision Care. The company is headquartered in Geneva, Switzerland. ALC was created from a spin-off of pharmaceuticals company Novartis AG (NVS) in 2019.
In April, ALC obtained the commercialization rights in the United States for the glaucoma eye-drop Simbrinza® from Novartis, expanding its eye drop portfolio. It also announced the launch of its new lubricant eye-drop. The new eye-drop, along with Simbrinza, is expected to propel ALC to substantial gains.
Last month, ALC unveiled its new water gradient reusable lens designed for a comfortable lens experience for 30 days. In a global market where approximately two-thirds of lens-wearers use reusable lenses, this new variety of lenses can be expected to be highly demanded.
For its second fiscal quarter, ended June 30, ALC’s net sales to third parties increased 74.8% to $2.09 billion. Its core gross profit rose 106.1% from the same period last year to $1.35 billion. Its core net income and core EPS came in at $278 million and $0.56, respectively, indicating a substantial increase from negative year-ago values.
The Street’s $0.49 EPS estimate for the current quarter (ending September 2021) reflects a 25.6% year-over-year improvement, while the Street’s $2.04 billion revenue estimate for the current quarter indicates a 12.2% year-over-year sales growth. In addition, ALC beat the consensus EPS estimate in three out of the four trailing quarters. The stock has gained 48% in price over the past year and 27.2% year-to-date to close yesterday’s trading session at $83.95.
It’s no surprise that ALC has an overall B grade, which translates to Buy in the POWR Ratings system. In addition, ALC has a Growth grade of A, and a Stability and Sentiment grade of B. In the 182-stock Medical – Devices & Equipment industry, it is ranked #30.
Click here to see additional POWR Ratings for ALC (Value, Momentum, and Quality).
Terumo Corporation (TRUMY)
Based in Japan, TRUMY designs, manufactures, and distributes medical equipment and services globally. It operates in three segments—Cardiac and Vascular; General Hospital; and Blood and Cell Technologies.
On August 11, TRUMY’s Blood and Cell Technologies segment collaborated through a memorandum of understanding (MOU) with PhotonPharma Inc. to develop an immunotherapy for solid tumors. This development can be expected to attract a larger customer base for TRUMY by potentially reducing the cost of therapies.
On July 20, the European branch of TRUMY declared the continuation of its collaboration with University Medical Center Utrecht (UMC Utrecht) in developing cancer treatments. This development could prove beneficial for afflicted patients, and the innovation could generate higher income for TRUMY.
TRUMY’s revenue increased 30.8% year-over-year to ¥171.72 billion ($1.56 billion) in its first fiscal quarter ended June 30. The company’s operating profit improved 100.5% from the prior-year quarter to ¥36.23 billion ($329.62 million), while its total comprehensive income came in at ¥28.59 billion ($260.10 million) up 186% from the same period last year. EPS increased 99.3% year-over-year to ¥36.87 ($0.34).
A $1.52 billion consensus revenue estimate for the current quarter (ending September 2021) indicates a 3.7% year-over-year rise. TRUMY has topped consensus revenue estimates in three out of the four trailing quarters. TRUMY’s stock has gained 26.2% in price over the past six months to close yesterday’s trading session at $48.07.
TRUMY’s POWR Ratings reflect this promising outlook. The stock has an overall B rating. TRUMY has a Stability grade of A, and a Growth grade of B. It is ranked #32 of 182 stocks in the Medical – Devices & Equipment industry.
In addition to the POWR Ratings grades we’ve stated above, one can see TRUMY ratings for Value, Momentum, Sentiment, and Quality here.
West Pharmaceutical Services, Inc. (WST)
WST delivers an injectable medicines and healthcare products containment and delivery system. The Exton, Pa., company operates in two segments—Proprietary Products; and Contract-Manufactured Products.
The company’s strong second-quarter results can be traced back to strong sales of its COVID-19 related products. In its second fiscal quarter, ended June 30, WST’s net sales improved 37.3% year-over-year to $723.60 million. Its gross profit increased 61.5% year-over-year to $315.10 million. Its adjusted net income and adjusted EPS rose 97% and 96.8%, respectively, from the prior-year quarter to $186.4 million and $2.46.
Analysts expect its EPS to come in at $1.80 in the current quarter (ending September 2021), reflecting a 56.5% year-over-year rise. The Street’s 687.09 million revenue estimate for the current quarter indicates a 25.4% increase from the prior-year quarter. WST has topped consensus EPS estimates in each of the four trailing quarters. The stock has gained 62.3% in price over the past year and 56.1% year-to-date.
WST is rated a B by the POWR Ratings, which equates to a Buy. In addition, the stock has an A grade for Sentiment, and a B grade for Growth. It is ranked #31 in the Medical – Devices & Equipment Industry.
To see the additional POWR Ratings for Value, Momentum, Stability, and Quality for WST, click here.
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RMD shares were trading at $293.54 per share on Tuesday afternoon, up $4.64 (+1.61%). Year-to-date, RMD has gained 38.85%, versus a 20.10% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...
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