3 Medical Devices Stocks Set To Beat This Earnings Season

As of the end of last week, 310 S&P 500 members have reported their Q1 results, representing 85.3% of the sector’s total market capitalization on the index. While to our great disappointment, we have seen that total earnings for these index members are down -7.2% year over year on -2.4% lower revenues, here is some real good news for investors keen on the Medical sector.

So far, more than 60% of the Medical sector index members have released their first-quarter financial numbers, out of which 78.1% have reported better-than-expected earnings performance on revenue beat of 68.8%. Accordingly, earnings were up 6.3% year over year on an 11.8% revenue growth rate.

While the global economic hullabaloo has been seen to hit the economy hard, leaving the conventional heavyweights like Finance, Tech, aerospace or oil/energy in a position to pull the industry-wide average expectation down, this stupendous first-quarter performance by the Medical sector is something investors definitely need to muse on.

Beaming Medical Device Space

In fact, if we eliminate major drug and biotech stocks from Medical, which are currently entwined in pricing and prescription drug affordability related issues, this space confined mostly by medical device stocks indeed lends a lot of optimism. A recent EvaluateMedTech World Preview claims that the medical device space is positioned for impressive growth in the near term. At a glance, worldwide, medical device sales are expected to grow at a CAGR of 4.1% to $477.5 billion by 2020.

Needless to say that the factors like the recent exemption of the Medical Device Excise tax for the next two years came in as a much-needed breather for these Medical device stocks. This dreadful tax, which was commonly referred to as “fund of the Affordable Care Act (ACA)”, simply took a toll on the entire medical device industry, since its enactment in 2013.

Data published in a report in FierceMedical Device stated that in 2014, Johnson & Johnson 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.

We believe this exemption, albeit temporary, has boosted the positive sentiment in the medical device investment world, as most analysts believe it to be adequate for companies to address pressing issues such as a lack of opportunity for research and development, innovation, pipeline development, and to make investments needed to accelerate patient and provider access to innovative health care products.

Apart from that, the strong product cycle and consistent innovation across different markets have continued to remain the major growth drivers in the medical device subsector.

Making the Right Choice

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