metamorworks
Baird said it sees medtech outperforming the broader market in 2024 after three years of underperforming, but remains cautious about the dental and aesthetics markets near-term.
The investment bank noted that medtech got a boost from last week’s investment conference in San Francisco, with the iShares US Medical Devices ETF climbing 2.8% over the past five days, beating the S&P 500, which rose 1.6%.
Baird’s top medtech picks for 2024 continue to be Alcon (ALC), Stryker (SYK), The Cooper Companies (COO) and Boston Scientific (BSX). Those picks are now joined by Dexcom (NASDAQ:DXCM), with Intuitive Surgical (NASDAQ:ISRG) and Inspire Medical Systems (NYSE:INSP) “creeping closer.”
Medtech patient volumes appeared to hold up well in Q4, with particularly solid demand for hip/knee replacements, diabetes devices, contact lenses, ophthalmology products, cardiovascular and neuromodulator devices, and surgical robotics, Baird said in a recent note. Companies that preannounced earnings also beat Street Q4 revenue estimates, “largely bracketing consensus 2024 expectations and thereby de-risking upcoming reports,” Baird said in a recent note.
“We have a growing sense that very very low single-digit organic growth is what we’re going to hear Dentsply Sirona (XRAY), Envista (NVST), and Henry Schein (HSIC) guide to for 2024 over the next few weeks on Q4 calls, and off the recent run these stocks have had, we now worry such guidance could disappoint,” Baird analysts added.
Baird said that because of this, it was shifting its view of the dental group from “tactically positive to tactically neutral to even slightly negative.” It also reiterated “a more cautious 12-month view on all but Align (NASDAQ:ALGN).”
As for aesthetics, Baird said it still sees InMode (INMD) and Apyx Medical (APYX) as well positioned for the ongoing industry shift from liposuction to body contouring. It also believes companies focused on skin-tightening procedures such as InMode will benefit in the long-run from the popularity of GLP-1 weight-loss drugs.
Despite this, Baird cautioned InMode investors to “brace for what could ultimately be a 2024 guide that calls for little to no revenue growth this year relative to 2023.”
In general, Baird sees medtech margins improving this year as companies return to focusing on enhancing efficiency after years of grappling with supply chain problems.
As for individual companies, Baird said Boston Scientific’s planned merger with Axonics (AXNX) underscores its position as a top idea for 2024, given that both companies were on its picks list moving into the new year.
The investment bank has also added Dexcom to its top picks list, citing its non-insulin sensor Stelo as a growth driver. It also sees the company delivering around 25% to 30% EBITDA growth “over the immediate term.”
Baird noted that Intuitive and Inspire Medical just narrowly missed making the list. The investment firm said that Intuitive “creeps closer” after issuing a “no comment” about a new system in 2024, while Inspire “remains on the edge given anticipated volatility surrounding SURMOUNT-OSA’s early 2024 readout.”
