The year began on a dim note for the stock market on concerns over the Fed’s decision to raise rates several times this year to control multi-decade-high inflation. However, the performance of the medical devices industry has been relatively stable due to near-inelastic demand for its solutions and a surge in elective surgeries. The rising medical needs of an aging population continue to support the industry’s growth. Furthermore, with the pandemic far from over, the medical devices industry is likely to remain in the limelight.
Medical device M&A and IPOs hit new highs in 2021, with 22 acquisitions and 24 IPOs. With more discoveries in medical AI to provide efficient and effective diagnoses and cures, the industry is well-positioned to grow. According to a Market Watch report, the global medical device market is expected to hit $625.3 billion by 2027, growing at a 6.3% CAGR.
Given this backdrop, we think it could be wise to bet on fundamentally sound medical device stocks Varex Imaging Corporation (VREX) and Natus Medical Incorporated (NTUS). They are currently flying under the radar but are rated A (Strong Buy) in our proprietary POWR Ratings system.
Varex Imaging Corporation (VREX)
VREX designs and manufactures X-ray imaging components. The Salt Lake City, Utah-based company operates in two segments–Medical and Industrial. VREX has a 70-plus year history of successful innovation, and employs approximately 2,100 people in North America, Europe, and Asia. It has a market capitalization of $1.26 billion.
On Nov. 16, 2021, Sunny Sanyal, CEO of VREX, said, “I am extremely proud of the immense effort our global employees made to prioritize meeting the very high demand environment while working to mitigate a dynamic supply chain. We look forward to carrying this momentum into the fiscal year 2022.”
VREX’s total revenues increased 33.1% year-over-year to $226.30 million in its fiscal 2021 fourth quarter, ended Oct. 1, 2021. Its non-GAAP gross profit came in at $77.60 million, up 64.1% year-over-year. Also, its non-GAAP gross margin percent came in at 34.3%, versus 27.8%, and its non-GAAP EPS came in at $0.45, compared to a $0.04 loss per share.
Analysts expect VREX’s revenue to increase 4.9% year-over-year to $858.5 million in its fiscal 2022. Its EPS is estimated to increase 13.3% to $1.62 for fiscal 2023. In addition, it has surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 33% in price to close yesterday’s trading session at $25.66.
VREX’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which indicates a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
VREX has an A grade for Growth and Value and a B grade for Quality. Within the Medical – Devices & Equipment industry, it is ranked #7 out of 165 stocks. Click here to see the additional POWR Ratings for Momentum, Stability, and Sentiment for VREX.
Natus Medical Incorporated (NTUS)
Pleasanton, Calif.-based NTUS provides medical device solutions focusing on diagnosing and treating patients with central nervous and sensory system disorders worldwide. It is a leading provider of medical device solutions for diagnosing and treating central nervous and sensory system disorders.
On Nov. 4, 2021, Jonathan Kennedy, President, and CEO, NTUS, said, “We saw the benefits of our investments in innovation this quarter with the release of the new Retcam Envision newborn eye imaging system in the United States, the first successfully performed clinical case using Natus’ newly launched XactTrode™ family of platinum subdural electrodes and another quarter of growing sales for our UltraPro EMG device, which was released in the fourth quarter of 2020.”
For its fiscal third quarter, ended Sept. 30, 2021, NTUS’ revenue increased 10.8% year-over-year to $113.88 million. In addition, its non-GAAP net income came in at $9.33 million, up 192% year-over-year. The company’s non-GAAP EPS was $0.28, up 211.1% year-over-year.
NTUS’ revenue is expected to be $485 million in fiscal 2022, representing a 3% year-over-year rise. And its EPS is expected to grow 24.3% year-over-year to $1.43 in fiscal 2022. The stock closed yesterday’s trading session at $22.65.
It is no surprise that NTUS has an overall A rating, which equates to a Strong Buy in our proprietary rating system. In addition, it has an A grade for Growth and Value and a B grade for Quality.
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VREX shares were unchanged in premarket trading Wednesday. Year-to-date, VREX has declined -18.67%, versus a -4.63% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...
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