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Baird has chosen Alcon (NYSE:ALC), Stryker (NYSE:SYK), The Cooper Companies (NASDAQ:COO), Axonics (NASDAQ:AXNX) and Boston Scientific (NYSE:BSX) as its top medtech picks for 2024.
While allowing that medtech has underperformed the S&P 500 for three straight years, Baird said it likes the sector’s setup moving into 2024, pointing to fading concerns about the impact of GLP-1 drugs, “solid” topline fundamentals and improving margins.
The investment bank said it believes valuations have started to “better embed” concerns about GLP-1s, the upcoming US elections, and macroeconomic issues. It noted that medtech is generally not as impacted by elections as other healthcare subsectors and is often seen as a defensive play in times of macroeconomic uncertainty.
“If investors focus on high-quality names with strong new product cycles and (rarely seen in MedTech) pricing power, we believe there’s out-performance to be had,” the analysts wrote in their note.
Baird also sees margin recovery emerging in 2024, helped by new product launches, improved pricing power and increased normalization of supply chains.
The investment firm said that Alcon, Stryker and Cooper “sit at the top of our list” because they all have product cycles and pricing power.
Baird said that while Alcon shares weren’t cheap, it believes concerns about AT-IOLs, or Advanced Technology Intraocular Lenses, and cataract volumes “seem overdone.”
“We remain big fans of Alcon’s contact lens co-specific cycle and the sustainability of contact lens pricing tailwinds more generally, and we believe 2024 will be a strong year for margin improvement,” the analysts wrote.
Baird also likes contact lens maker Cooper for similar reasons, but prefers Alcon’s surgical to CooperSurgical. It also believes Alcon will see greater margin expansion in 2024 than Cooper.
As for Stryker, Baird believes the company’s margins will benefit in 2024 from “premium” prices tied to its MedSurg product launches. It also sees “solid orthopedic end-market demand trends and continued robot-driven core ortho share gains.”
The investment bank also has “high conviction” in FY 2024 and FY 2025 for revenue/profit upside from Boston Scientific and Axonics.
Baird said that Axonics “carries one of the best, improving and sustainable positive profit outlooks into FY 2024 and beyond.” The investment bank sees upside to its 23% growth estimate, with Axonics gaining share in the US sacral neuromodulation market. Baird added that the company was “emerging as a CNS long.”
As for Boston Scientific, Baird sees new “meaningful” product launches positioning the company for accelerating revenue growth into 2025. It added that margin improvements should “support BSX’s premium valuation.”
Baird said that Inspire Medical Systems (INSP) and Intuitive Surgical (ISRG) “narrowly missed” its top picks list due to valuation and “potential near-term headline risk.” The investment firm, however, remains “confident in long-term outlooks and would be buyers on any pullbacks.”
