Zacks Industry Outlook Highlights: Johnson & Johnson, Smith & Nephew, Medtronic, Abbott Laboratories and St. Jude Medical
Zacks Equity Research
Updated
For Immediate Release
Chicago, IL – July 14, 2016 – Today, Zacks Equity Research discusses MedTech, Part 2, including Johnson & Johnson (JNJ), Smith & Nephew (SNN), Medtronic (MDT), Abbott Laboratories ( ABT) and St. Jude Medical (STJ).
Over the past few years, the U.S. medical device market has undergone a substantial transformation. While there are a lot of thorny regulatory and financial issues that hardly look resolved anytime soon, the powerful long-term tailwinds, including mergers & acquisitions, emerging market expansion, positive demographic trends and new product innovation have been the vital force behind the continued uptrend of the sector’s performance.
In addition, the recent change in consumer demand and market dynamics have led to a dramatic transformation in the healthcare system. This is evident from the growing prevalence of minimally invasive surgeries, rising demand for liquid biopsy tests, use of IT for ensuring quick and improved patient care and the shift of the payment system to a value-based model, among others.
Adding to the advantage is the temporary two-year suspension of the controversial and dreadful 2.3% medical device excise tax which took a toll on the entire MedTech industry since its enactment in 2013.Data published in a report in FierceMedical Device stated that in 2014, Johnson & Johnson ( JNJ) made a payment of $180 million in medical device tax payments, while Medtronic (MDT), legacy Covidien and Smith & Nephew ( SNN) paid $112 million, $60 million and $25 million, respectively.
Let’s go through some of the major long-term tailwinds of the MedTech sector. These include M&A, Divestment and Emerging Market.
M&A Boom Continues
Going by the last available EvaluateGroup data, the first half of 2015 saw 86 mergers and acquisitions, totaling $83 billion, a rise of 166% from the year-ago period. Although the next report is not yet released, the unofficial talk is that the full-year target of $100 billion of M&A valuation was effortlessly reached with the legacy continuing into 2016.
Medtronic (MDT), after its path breaking $42.9 billion acquisition of Irish rival Covidien (in Jan 2015), has not taken a breather from strategic M&As. Among many others, the company recently entered into an agreement to buy Heartware International for a total value of $1.1 billion. This acquisition is expected to significantly boost Medtronic’s cardiac rhythm and heart failure business, alongside providing a strong foothold in the global niche.
Some other significant consolidation deals of recent times are discussed below:
Abbott Laboratories (ABT) - St. Jude Medical ( STJ): In April, Abbott announced its decision to consolidate with St. Jude Medical for a deal value of $25 billion. Post completion, this will create a leader in high-growth cardiovascular markets, including atrial fibrillation, structural heart and heart failure as well as earn a leading position in the high-growth neuromodulation market.
Zacks Industry Rank
Within the Zacks Industry classification, Medical Device is grouped under the Medical sector (one of 16 Zacks sectors) and further sub-divided into four industries at the expanded level: med instruments, med products, med/dental-supp and medical info systems.
We rank all the 260-plus industries in the 16 Zacks sectors based on the earnings outlook and fundamental strength of the constituent companies in each industry. To learn more visit: About Zacks Industry Rank.
As a guideline, the outlook for industries with Zacks Industry Rank of #88 and lower is 'Positive,' between #89 and #176 is 'Neutral' and #177 and higher is 'Negative.'
The Zacks Industry Rank for medical info systems is #20, med instruments and med products both being #88, while the med/dental-supp is #34. Analyzing the Zacks Industry Rank for different Medical Device segments, it is obvious that the outlook for all these four medical device industries is positive.
Earnings Trend of the Sector
Of the S&P 500 members, the Medical companies have yet to report their second quarter results as of July 8. In the second quarter of 2016, only 6 among all the 16 Zacks sectors are expected to report positive year-over-year earnings growth, Medical being one of them (increase of 0.5%). With respect to the quarter’s revenues, year-over-year growth is expected to remain strong at 7.7% for Medical.
For more information about earnings for this sector and others, please read our ‘ Earnings Trends’ report.
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