- Second-quarter financial results from Abbott Laboratories, Johnson & Johnson and Intuitive Surgical offer encouragement for the rest of the medtech reporting season, according to analysts at BofA Securities.
- The analysts expect Boston Scientific to beat guidance, pointing to Abbott's results to make their case, and are increasingly confident that Zimmer Biomet can at least match consensus expectations.
- Looking beyond the second quarter, the analysts expect medtech to experience "ups and downs on variant news flow" but see signs the industry can continue to grow even if COVID-19 spreads over the second half of the year.
Medtech earnings season got underway last week with a flurry of announcements that suggested the industry recovered in the second quarter from the pandemic pressures experienced in the first few weeks of the year. Abbott's medical device sales soared 51.3%, although COVID-19 testing sales were soft, as expected, while Intuitive and J&J reported growth of 72% and 62.7%, respectively.
The big growth figures reflect the easy comparisons to the second quarter of 2020, when restrictions put in place to curb the spread of the coronavirus torpedoed medtech sales, but were also up on the comparable period of 2019.
As the BofA analysts calculated, Intuitive grew procedures by 34% and J&J increased medtech revenue by 7% compared to the second quarter of 2019. Abbott's medtech sales, excluding its fast-growth diabetes business, were up a more modest 3% versus the second quarter of 2019 but accelerated throughout the three-month window to exit the period up 7%.
The analysts see the results as positive for other medtech companies. Boston Scientific was among the stronger medtech performers in the first quarter. The BofA analysts expect Boston Scientific to again outperform Abbott's ex-diabetes medical device division, leading them to predict the company may beat the consensus of analysts.
Expectations for Zimmer Biomet were lower ahead of the first set of second quarter results, with J.P. Morgan analysts saying "management sounded somewhat less bullish than others intra-quarter and the stock has lagged." The BofA analysts came away from the results from J&J, one of Zimmer's rivals for the orthopaedics space, more positive about the company's prospects.
"JNJ's Q2 hip and knee results suggest ZBH will not miss consensus (and could beat) revenue and reduces the probability of a guide down for 2021, in our view," the analysts wrote in an investor note.
The BofA note also looked at the implications of the first round of results for Alcon and Dexcom. The analysts said Abbott's continuous glucose monitor sales suggest "a small beat" for its rival Dexcom. For Alcon, the analysts said the introductions of new J&J vision products are too recent to impact on the second-quarter results, but warned competition will heat up in the back half of the year.
Overall, the outlook for the second half of 2021 is more uncertain, given questions over how rising COVID-19 cases, driven by the unlocking of economies and the delta variant, will affect demand for medtech products in the coming months.
"The key question in our view is can growth continue into the back half with COVID spreading. We think that will depend on both patient psychology and hospitalization rates and, so far, trends are encouraging. There will likely be ups and downs on variant news flow over that time frame but, over a 6-12 month period, the direction for medtech stocks should be higher, in our view," the BofA analysts wrote.
The analysts added that "back half consensus expectations look too low" for Boston Scientific.
They will soon find out if their second-quarter predictions are correct. Boston Scientific is set to report results on Tuesday, with Dexcom following on Thursday. Alcon and Zimmer are scheduled to report in the coming weeks.