Baxter cut to Sell as Goldman Sachs flags macro risks in MedTech space

Apr. 04, 2022 10:10 AM ETBaxter International Inc. (BAX)ABT, MDT, SYK, ZBH, ISRG, IHI, EW, BDX, SKIN, LIVN, AGTIBy: Dulan Lokuwithana, SA News Editor3 Comments

BioNTech To Expand Vaccine Production At Baxter International Facility

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Goldman Sachs has weighed in on the effect of macro factors on the MedTech stocks as the COVID recovery develops into a potential tailwind for a sector hurt by the pandemic’s impact on medical procedures.

As part of the analysis, the firm has downgraded Baxter International (NYSE:BAX -3.5%) to Sell from Neutral, noting that the healthcare equipment maker is more exposed to the macro headwinds compared to its peers.

Some of the factors highlighted by Amit Hazan and analysts include the company’s heavy exposure to resin costs amid rising oil prices. In addition, the team argues that Baxter (BAX) is also vulnerable to higher freight and logistic costs, given its product mix.

Meanwhile, the areas of concern in the base business, namely diminishing vaccine benefit, Pharma competition, and weak renal growth amid COVID-related impact on patient volumes, “further reduce the probability of top-line upside,” the analysts wrote.

The price target was slashed to $77 from $88 to account for, among others, the headwinds for margin outlook due to macro concerns.

However, citing their less exposure to headwinds, Goldman Sachs continues to favor Intuitive Surgical (ISRG -0.7%), Zimmer Biomet (ZBH -2.0%), and Becton, Dickinson (BDX -1.3%), all of which, according to the firm, has issued somewhat conservative forecasts.

Citing the potential for downward revisions, the analysts sound caution on Abbott Laboratories (ABT -0.2%) and Medtronic (MDT -1.5%). They also noted concerns on Stryker (SYK -2.0%) and Edwards Lifesciences (EW -2.3%), expecting the companies to report weaker Q1 results.

However, the team is more optimistic about SMID-caps, arguing that the segment “tends to be better indexed towards US top line recovery, less exposed to margin headwinds, and more likely to see valuation support if M&A activity increases,” which could happen soon. They mentioned Agiliti (AGTI -1.7%), LivaNova (LIVN -3.3%) and The Beauty Health (SKIN +1.4%) as their preferred names.

Goldman Sachs analysis on MedTech comes at a time the industry benchmark, iShares U.S. Medical Devices (IHI -1.2%), is underperforming the broader market in the year so far, as shown in this graph.

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