The United States has the largest medical device market in the world, valued at $110 billion and expected to reach $133 billion by the end of the year. The medical instrument maker industry has over 6,500 companies in the U.S. and sports a Zacks Industry rank of 48 out of 265(top 18%).
It’s difficult to sort though all these medical instrument maker companies, finding the next big instrument that will save or extend lives isn’t easy. But if investors can get in early, they will be rewarded as hospitals and physicians discover the product, making it industry standard.
Let’s look at four medical companies that have promise to grow and expand their business, possibly becoming the industry standard in the medical world.
Intuitive Surgical (ISRG) is a Zacks Rank #1(Strong Buy) that designs, manufacturers and markets the da Vinci surgical systems and related instruments. The da Vinci surgical system, which operates in hospitals worldwide, is the primary driver for growth. The system can be best described as a robotic surgeon, controlled by a human operator, which enhances visualization and precision for that operator. Benefits for the patients include less pain, less blood loss, shorter hospital stay and quicker recover.
Intuitive Surgical has a market cap of $21 billion with a Forward P/E of 32. The company has Zacks Style Score in Momentum of “A” and is sitting only a couple percentage points away from its 52-week highs.
Last week’s earnings were impressive, causing the stock to head almost 5% higher before pulling back. The company reported Q4 revenue at $5.89 vs $5.01 expected, with revenue coming in at $677 million vs the $617 million expected. Da Vinci systems revenue was up 8% year over year, while service revenue was up 9% over the same period. Worldwide da Vinci procedures were up 15% year over year, showing the popularity and momentum of robotic surgery.
EPS surprises are nothing new for the company, surprising to the upside six out of the last seven quarters. Estimates are also heading higher, with analyst revising numbers higher for 2016 and 2017.
Intuitive has been a very volatile stock that has had issues in the past. One of these issues has been reoccurring lawsuits, which accused the surgical system to be flawed and cause health complications. Lawsuits are troublesome and risks to the stock, but investors are shrugging them off for now as the stock approaches all time highs.
Abiomed (ABMD) is a Zacks Rank #2 (Buy) that researches, develops and sells medical products in circulatory support and for the pumping function of the heart. The Massachusetts company has a market cap of $3.73 billion and a forward P/E of 127, causing a valuation issue for most investors.
Abiomed has a Zacks Style Score of “F” in valuation, but a “B” in growth. This disparity tells us investors expect a lot of growth to justify the valuation and earnings must be strong to lead the stock price higher.
There are reasons to believe strong earnings are likely. Next year’s estimates revisions pushed 4.1% higher over the last 90 days, with estimates going from 97 cents per share to $1.01 per share.
In addition, agreements among those analysts are to the upside, with 10 out of 12 revisions headed higher.
Since 2012, Abiomed has had a downside EPS surprise only once. Investors didn’t really appreciate the streak until late 2015, since then the stock has responded very well to earnings reports, all of which have been to the upside.
Exactech (EXAC) is a Zacks Rank #1(Strong Buy) that develops manufactures, markets and distributes orthopedic implant devices, related surgical instruments, and biologic services to hospitals and physicians.
The company is a value play with a $262 million market cap, a forward PE of 15, and a Zacks Style Score of “A” in Value. Estimate revisions have headed 4% higher over the last 60 days, going from $1.19 per share to $1.24 per share for fiscal year 2016.
Iradimed (IRMD) is a Zacks Rank #2(Buy) that engages in developing, manufacturing, marketing and distributing MRI compatible products. The company sells its pridcuts to hospitals, acute care facilities and imaging centers.
Iradimed has a $250 million market cap and a forward P/E of 25. The company is a growth play with a 115% revenue increase and 700% EPS growth verses last year . Iradimed sports a Zacks Style Score of “A” in Growth and Momentum.
The young company has surprised every quarter since it became public, showing us analyst are underestimating earnings power. However, earlier this month, the company guided Q1 lower, which hit the stock. Provided this isn’t a loss of momentum and just a hiccup, the recent pull back provides an opportunity for entry.
Medical Device Stocks to Buy Summary
Medical device companies can be very rewarding for investors. When a company’s product proves itself to be helpful to extend or saves lives, it can become an industry standard. Growth and reoccurring revenue is crucial to the bottom line and higher stocks prices.
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