Should you Buy or Sell These 3 Medical Stocks?

Thanks to the rising awareness of the benefits of digital health services and technological advancements, the medical industry is poised for remarkable growth. While the industry outlook may seem promising, should one buy or sell Medtronic (MDT), Zimmer Biomet (ZBH), and Merit Medical (MMSI)? Read more to find out...

The medical sector enjoys inelastic demand, making it appealing for investments during market turbulence. Against this backdrop, investors could consider buying quality medical stocks Medtronic plc (MDT), Zimmer Biomet Holdings, Inc. (ZBH), and Merit Medical Systems, Inc. (MMSI).

The medical sector is experiencing a boost due to the growing use of big data in healthcare, the increasing use of EHR and EMR systems, the help given to keep patients' electronic health records up to date, and regulatory requirements.

Also, the market is growing amid the rising awareness of the benefits of digital health services. The global digital healthcare market is anticipated to grow at a CAGR of 23.7% until 2030, reaching $1.30 trillion.

In addition, technological advancements in medical devices, such as the development of minimally invasive procedures, advanced materials, and 3D printing, are driving market growth. These innovations are improving the accuracy, efficiency, and effectiveness of medical devices and are creating new treatment options for patients.

The global medical devices market is expected to grow at a CAGR of 6.2% until 2031.

Moreover, the demand for disposable medical supplies is on the rise due to multiple factors, including the rising number of surgical procedures, an increase in hospital-acquired infectious diseases (HAI), and other chronic conditions.

The US disposable medical supplies market is expected to reach $228.38 billion by 2028, growing at a CAGR of 11.5%.

Take a look at the stocks mentioned above:

Medtronic plc (MDT)

MDT develops, manufactures, and sells device-based medical therapies to healthcare systems, physicians, clinicians, and patients worldwide.

On May 25, 2023, MDT announced it had entered into a set of definitive agreements to acquire EOFlow Co. Ltd., manufacturer of the EOPatch device, a tubeless, wearable, and fully disposable insulin delivery device.

The addition of EOFlow, together with MDT's Meal Detection Technology algorithm and next-generation continuous glucose monitor (CGM), the company is expected to expand the company's ability to address the needs of more individuals with diabetes, no matter where they are in their treatment journey or preference for how they want their insulin delivered.

MDT’s trailing-12-month gross profit margin of 65.98% is 18.6% higher than the 55.64% industry average. Its trailing-12-month EBITDA margin of 26.82% is 645.2% higher than the 3.60% industry average.

MDT pays $2.76 annually as dividends which translates to a yield of 3.19% at the current price. Its four-year average dividend yield is 2.38%. Its dividend payouts have grown at 7.5% CAGR over the past three years.

During the fiscal fourth quarter that ended April 28, 2023, MDT’s non-GAAP net sales increased 5.6% year-over-year to $32.72 billion. Non-GAAP net income
attributable to MDT increased 2.6% year-over-year to $2.09 billion and non-GAAP earnings per share increased 3.3% year-over-year to $1.57.

Analysts expect MDT’s revenue for the fiscal first quarter ended July 2023 to increase 2.5% year-over-year to $7.55 billion. Its EPS is expected to be $1.11 for the same quarter. Also, it has surpassed EPS estimates in each of the trailing four quarters, which is impressive.

Shares of MDT have gained 10.8% year-to-date to close the last trading session at $86.12.

MDT’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

The stock has a B grade for Growth, Value, and Stability. It is ranked #9 out of 139 stocks in the Medical - Devices & Equipment industry.

Beyond what is stated above, we’ve also rated MDT for Momentum, Sentiment, and Quality. Get all MDT ratings here.

Zimmer Biomet Holdings, Inc. (ZBH)

ZBH operates as a medical technology company in the Americas, Europe, the Middle East, Africa, and Asia Pacific.

ZBH’s trailing-12-month gross profit margin of 71.58% is 28.7% higher than the 55.60% industry average. Its trailing-12-month EBITDA margin of 32.87% is 813.2% higher than the 3.60% industry average.

On May 15, 2023, ZBH declared a quarterly dividend of $0.24, payable on July 31. The company pays an annual dividend of $0.96, which translates to a yield of 0.68% at the current price level. It has a four-year average dividend yield of 0.73%.

ZBH's net sales increased 10.1% year-over-year to $1.83 billion in the fiscal first quarter that ended March 31, 2023. Also, net earnings of ZBH increased significantly year-over-year to $232.50 million, and net earnings per common share increased significantly year-over-year to $1.11.

Street expects ZBH’s revenue for the fiscal second quarter ended June 2023 to increase 2.5% year-over-year to $1.83 billion. Its EPS is expected to be $1.81 for the same quarter. Also, it has surpassed EPS and revenue estimates in each of the trailing four quarters.

The stock has gained 67.6% over the past year to close the last trading session at $140.79.

ZBH’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to a Buy in our proprietary rating system.

ZBH has an A grade for Growth and a B in Sentiment and Quality. It is ranked #8 in the same industry.

Click here to see the additional POWR Ratings for ZBH (Value, Momentum, and Stability).

Merit Medical Systems, Inc. (MMSI)

MMSI designs, develops, manufactures, and markets single-use medical products for interventional, diagnostic, and therapeutic procedures, primarily in cardiology, radiology, oncology, critical care, and endoscopy. It operates in two segments, Cardiovascular and Endoscopy.

On June 8, 2023, MMSI announced it had completed the acquisition of a portfolio of dialysis catheter products and the BioSentry Biopsy Tract Sealant System from AngioDynamics, Inc. for a total cash consideration of $100 million.

MMSI also announced the recent acquisition of the Surfacer Inside-Out Access Catheter System from Bluegrass Vascular Technologies, Inc. for a total cash consideration of $32.5 million.

MMSI’S trailing-12-month EBITDA margin of 16.31% is 353.1% higher than the 3.60% industry average. Its trailing-12-month asset turnover ratio of 0.71x is 99.9% higher than the 0.35x industry average.

MMSI’s net sales increased 8% year-over-year to $297.57 million in the fiscal first quarter, which ended March 31, 2023. Non-GAAP operating income increased 12.2% year-over-year to $47.97 million. Also, non-GAAP EPS increased 19.3% year-over-year to $0.64.

MMSI’s EPS for the fiscal second quarter ended June 2023 is expected to increase 3.4% year-over-year to $0.76. Its revenue is expected to increase 5.2% year-over-year to $310.24 million for the same quarter. Also, it has surpassed EPS and revenue estimates in each of the trailing four quarters.

The stock has gained 53.1% over the past year to close the last trading session at $82.39.

MMSI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.

MMSI also has an A grade for Growth and Sentiment and a B in Stability. It is ranked #11 in the same industry.

To access MMSI’s additional POWR Ratings for Momentum, Value, and Quality, click here.

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MDT shares were trading at $88.60 per share on Thursday morning, up $2.48 (+2.88%). Year-to-date, MDT has gained 15.88%, versus a 19.52% rise in the benchmark S&P 500 index during the same period.

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About the Author: Nidhi Agarwal

Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.

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