- A couple of weeks of diligence calls has led to an update on medical technology from BofA, where it changes a few ratings (mainly on valuation), raises a few price targets, and cites its best ideas going into the end of the year.
- The analysts are staying bullish on the sector, pointing to continued recovery in procedure volumes moving into August over July, and with management teams gaining confidence in the "quality and durability" of demand. Valuations are still attractive, and as for the election (unlike in 2016), medtech doesn't appear to be a direct target of either party this year.
- Management teams are likely to keep disclaiming optimism as cautious, but BofA says the checks bode well overall "especially given that valuations remain reasonable; medtech has no drug pricing risk; medtech has outperformed in the last three recessions and innovation pipelines are full."
- Two of the best ideas in the sector come from companies with attractive valuations, conservative consensus numbers and upcoming catalysts: Medtronic (NYSE:MDT) and Baxter International (NYSE:BAX). Medtronic's earnings call a couple of weeks ago supported BofA's view that demand looks more solid.
- It heard the same in management meetings with Stryker (NYSE:SYK) - who in fact sounds "among the most bullish both in terms of confidence in the recovery in procedures and, surprisingly, the outlook for the capital portion of their business." The company has exposure to a potential deep and lasting recession, but also "multiple durable growth tailwinds."
- In SMID-cap names, it's "very bullish" on SI-BONE (NASDAQ:SIBN), and still likes Hill-Rom (NYSE:HRC) even if 2021 numbers need to adjust.
- Biggest risks to the bull cases are a potential demand "air pocket" in late Q3 or Q4, if new demand doesn't step up to fill in for pandemic-rescheduled procedures; or a broad healthcare sell-off around the election.
- It's raising its target on ShockWave Medical (NASDAQ:SWAV) to $70 from $58 on upcoming catalysts.
- BofA is lowering ratings on a couple of names mainly on valuation: Intuitive Surgical (NASDAQ:ISRG) and Penumbra (NYSE:PEN) go to Neutral (in the latter case, also alongside controversy over its Xtra Flex catheter).