After a successful year in medical technology in which fundamentals stabilized and medtech stocks did well, JPMorgan Chase Analyst Michael Weinstein believes 2014 will see that trend really take root.
In a research note published this week, Weinstein wrote that he expects organic revenue growth in the medtech sector to increase to 4.2% this year, up 80 basis points, or 0.8% from 2013.
We see growth broadly accelerating in 2014-2015 as an industry that bottomed in 2011-2012 sees the benefits of new products, new markets, and small to mid- sized M&A. This is particularly true in cardiovascular devices, where we see growth accelerating at all three large cap names and ample room for innovation in small-cap, emerging growth companies – both public and private.
In large-cap companies, Weinstein points to Medtronic and St. Jude Medical as his top picks for the next 12 months, while for small-cap companies his top choice is Heartware. St. Jude Medical should do well if the FDA grants approval for the CardioMEMS technology aimed at heart failure patients. All eyes will also be on the launch of its leadless pacemaker in the EU, which the company got from its Nanostim acquisition, a technology that Weinstein views as a potential game changer.
For Medtronic, growth should come from emerging markets, an anticipated FDA approval of its transcatheter valve system in the U.S. among other drivers for growth, including the launch of its Symplicity renal denervation system.
Boston Scientific, which had a stellar year both in terms of organic growth and stock performance, should continue to benefit from the commercialization of the S-ICD system, a defibrillator that has no leads in the heart.
But 2014 will not be kind to all medtech companies. Weinstein points to Edwards Lifesciences as one company likely to struggle. Last year, the company could not meet its own expectations regarding sales of its Sapien transcatheter aortic valve replacement system. And this year, an FDA approval of Medtronic’s competing product will transform a monopoly to a duopoly in the U.S. while Europe will see multiple players enter the market.
“... 2013 wasn’t a great year for everybody. But the picture of the sector at this point in time, heading into 2014, looks as good as it’s been in the last 4-5 years,” Weinstein wrote.
And that’s reason enough to cheer.
[Photo Credit: istockphoto.com user Kameleon007]