MassDevice: What Has Earnings Season Told Us About Med-Tech?

As the dust settles after another earnings season, it's time to look back at what we now know about the state of the industry. Stocks in the sector have been enjoying a run that started in November 2012 on hopes for improving utilization trends and earnings in 2013.

While the results and guidance from this latest round of earnings suggest that expectations around utilization may have been a bit too optimistic, it does look like the industry is on firmer footing than a year ago.

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Seeking Alpha: Stryker Seems Back On Track, But There's Work To Do

Over the past year or so, investors have come back to the med-tech space and pushed valuations back up to levels closer to historical norms. Although that means a lot of easy money is gone, many of these companies still hold worthwhile potential as long-term holdings. Among them, Stryker (SYK) may still be among the most interesting. Not only does this well-regarded med-tech stock have an improving ortho market to exploit, but the company is something of a free agent in terms of using M&A to further expand its long-term revenue possibilities.

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Stryker Seems Back On Track, But There's Work To Do

Seeking Alpha: Stryker's Business Healthier Than The Stock

Investors are going to need a little more patience to see an investment in Stryker (SYK) come to fruition. While this diversified med-tech player is actually seeing some solid improvements in its business, 2012 is going to be a year of re-trenching. With a new CEO on the way and some potentially interesting developments in product development, Stryker is still a name to stick with in the healthcare sector.

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Stryker's Business Healthier Than The Stock

Seeking Alpha: Hill-Rom Needs Bedrest, But Should Recover

If you're going to run a boring business in med-tech, you had better run it well or nobody will care about the stock. Hill-Rom (HRC) is undoubtedly in a boring business (hospital beds, movement products, surfaces, and so on), but the execution has been more mixed. Margins here are broadly inferior to many other durable equipment companies and the company has lost some of its strangle-hold on the market to Stryker (SYK). With management giving a disappointing early look at first quarter numbers and trimming full-year expectations, Hill-Rom's stock may be on its back for a little while.


Fiscal First Quarter Earnings Following A Trend
Hill-Rom announced late Tuesday that results for the first quarter were going to come in short of Wall Street expectations. Revenue apparently came in at about $381 million, matching the low end of the analyst range and representing just 2% constant currency growth. Earnings are also going to miss, with the company expecting $0.52 or $0.53 instead of the average estimate of $0.55.

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Hill-Rom Needs Bedrest, But Should Recover

Seeking Alpha: Stryker's Guidance Sets Up A Solid 2012

'Tis the season for company to pre-announce earnings and it always feels like there are more warnings than positive surprises. Moreover, with the JPMorgan (NYSE: JPM) Healthcare Conference going on, many healthcare companies are apt to be giving the Street a look at both how the end of 2011 went and how 2012 is looking. To that end, Stryker (NYSE: SYK) is shaping up as a solid defensive name for investors looking for healthcare exposure.

The Details Of The Quarter
Stryker's early announcement of fourth quarter were results were largely consistent with what most investors were already expecting … at least in a macro sense. The company announced that reported revenue would be up 11%, just shy of the average estimate of 11.7%, with organic growth up a little more than 4%.

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Stryker's Guidance Sets Up A Solid 2012

Seeking Alpha: Integra Hitting That Same Ortho Wall

There was no shortage of skeptics regarding Integra LifeSciences' (Nasdaq: IART) aggressive build-by-acquisition strategy during the past decade, myself included. To management's credit, while the company has quite a lot of debt for a med-tech, it has emerged as an appealing niche player in attractive markets in orthopedics and neurosurgery. While the company is currently suffering from the same sluggish markets that have stalled out bigger rivals like Johnson & Johnson (NYSE: JNJ), Stryker (NYSE: SYK), and Medtronic (NYSE: MDT), this is an interesting stock to watch for investors who want to go a little deeper than the well-known big-cap names.

Reality Bites Into The Third Quarter
In an orthopedics world where hip, knee, and spine competitors like Biomet, JNJ, Medtronic, Stryker, Zimmer (NYSE: ZMH), and Smith & Nephew (NYSE: SNN) largely seem to be spinning their wheels, Integra had looked pretty good with a growing spine, orthobiologics, and extremities business. Unfortunately, it looks like the ortho malaise is spreading to the extremities.

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Integra Hitting That Same Ortho Wall

Investopedia: Stryker's Diversification Pays Off

The management of medical device and equipment maker Stryker (NYSE:SYK) has always seemed to have an uncanny knack for findings ways of pulling growth out of its hat. In a pretty uninspiring market for orthopedic implants, Stryker is finding growth in hospital equipment and acquisitions. With a strong market position and good long term prospects, this is one of the first names that investors lacking exposure to health care should consider. 

A Surprising Second Quarter  
Stryker's consolidated results were not so surprising, but how the company managed to get from A to B was a little surprising. Revenue rose about 16% on a reported basis, with 12% constant currency growth.

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http://stocks.investopedia.com/stock-analysis/2011/Strykers-Diversification-Paying-Off-SYK-JNJ-HRC-ZMH-NUVA-ATEC-BSX0722.aspx

Investopedia: Does Stryker Need Further Reconstruction?

Stryker (NYSE:SYK) has been relatively active of late in recrafting its business, but the first quarter's results suggest that management's work may not be done yet. Stryker remains a good core holding for GARP-oriented investors, but management is going to need to deliver better results on the "guh" side of GARP to get the Street excited again. 

An Okay (but Not Great) Quarter
Stryker did not disappoint, per se. But analysts are not going to be thrilled with the company's numbers nevertheless. Revenue grew more than 12% on a reported basis, with core constant currency organic revenue growth of 4%. That continues a rather unfortunate trend of unimpressive growth that stretches back a few years now.

While that revenue growth met expectations, the composition is the tricky bit. The orthopedics business was flat, while the MedSurg unit was up more than 12%, with double-digit growth in instruments and endoscopy. Even though companies like Johnson & Johnson (NYSE:JNJ) and Covidien (NYSE:COV) have long done well in endoscopy and its a good repeat business, other aspects of MedSurg are more tied to hospital capital budgets - that, and the margins, are largely why analysts don't love that unit so much.

Speaking of profitability, Stryker saw better gross margin on an adjusted basis. Adjusted operating income rose 10%, but margins still contracted all the same. So, the company met its numbers but not in a way that is going to have anybody pounding the table.


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http://stocks.investopedia.com/stock-analysis/2011/Does-Stryker-Need-Further-Reconstruction-SYK-JNJ-COV-ZMH-SNN0421.aspx

Hottest Device Stocks Of 2010

2010 was a tough year for medical device stocks. Investors faced up to the reality that a popular myth - that people do not meaningfully change their health care consumption because of the economy - is just not true. Investors also had to digest the impact of a suddenly much more industry-unfriendly FDA, which is imposing new (and in many cases unspecified) standards regarding safety and the trade-off with efficacy.


All in all, the medical device industry lost about 5% in 2010, just barely missing the bottom 10 list of underperformers. In fact, in broad terms, banks (which includes many subcategories), biotechnology, solar and for-profit education were the only ones separating medical devices from the bottom.

That said, it was not all doom and gloom in the sector. In fact, many medical device companies not only outperformed the industry but did quite well in absolute terms. Here are some of the notable performers of the year. (For a quick refresher, check out A Checklist Of Successful Medical Technology Investment.)

Growth Is Growth
NxStage Medical (Nasdaq:NXTM) does not get all that much attention, but this company has brought to reality what many companies have tried (and failed) to develop for at least two decades - an at-home hemodialysis system that actually works in both a technical and practical sense. NxStage is not profitable yet, but the company is posting double-digit growth (annualizing over $100 million). On top of that, sell-side analyst interest is picking up, and institutional investors are becoming a bigger player in the stock. All of that has fueled a better than 200% jump in the stock over the last year.  

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