Analyst: Medical device sector should outperform in 2010

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A more positive environment will lure generalist investors back into the fold, helping the medical device sector bounce back in 2010, according to Leerink Swann analyst Rick Wise.

Après le deluge, le bounce. Or at least a solid rebound for the medical device sector, according to analysts at New York investment firm Leerink Swann, who predict a rising tide that should lift most ships in the coming year.

In the firm’s 120-page 2010 outlook, Leerink analysts say they expect most healthcare sectors to outperform 2009, as earnings start to come back and the looming specter of dramatic healthcare reform lifts in favor of more modest changes. In addition, the analysts say positive activity on Wall Street will also start luring the individual investor back into the fold.

According to Leerink Swann analyst Rick Wise, the medical devices market will have strong top- and bottom-line growth in the coming year, fueled by stabilizing hospital budgets that saw massive cutbacks in 2009. Wise expects a gradual return to “normalcy” as hospitals begin re-stocking inventories and the capital equipment market freeze begins to thaw.

Wise is also bullish on the atrial fibrillation, spine and structural heart device markets. Companies in the capital equipment space should look for some rebound as well, he writes, and improving economic conditions could lead to more elective procedures being performed in 2010 — particularly welcome news for orthopedic procedures like hip and knee replacement surgeries, not to mention cosmetic procedures.

Mergers and acquisitions will continue to be attractive to large, cash-rich companies looking to expand their product pipelines. Wise expects average top-line growth of around 7 percent for large med-tech companies, with bottom-line increases of around 11 percent.

Stocks poised for gains in 2010 include Boston Scientific (NYSE:BSX), Baxter (NYSE:BAX), Stryker Corp. (NYSE:SYK), Covidien (NYSE:COV) and Insulet Corp. (NSDQ:PODD). Leerink rated all of them as “Outperform,” defined as a stock that outperforms its benchmark by more than 10 percent in the next 12 months.

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