Analysts bullish on medtech due to strong fundamentals

Both Morgan Stanley and BofA released bullish notes regarding medical technology on Tuesday.

BofA analysts told investors that medtech stocks are on sale, while the fundamentals are the best in three years, and that they see the sector as ownable.

“Medtech sold off post Q1 as investors realized Q1 rev beats had catchup/easy Jan comps, y/y growth is decelerating and rev beats will get smaller (and some flows into Tech sector),” wrote the analysts.

“Over the last month medtech is down 6%, S&P500 +1%, S&P Tech +9%. Elective medtech companies with Jan beat Q1 revs by 500-700bps and MDT, which didn’t have Jan, beat by 90bps,” they added. “ISRG said 6-7 points of its 26% Q1 procedure growth came from one timers and ISRG is seeing some of the best momentum in medtech suggesting one timers likely drove closer to a third or more of Q1 growth for the rest of elective medtech and most of the outsized upside vs Street.”

Meanwhile, Morgan Stanley analysts said that volumes are in a healthy place, with Q1 beats almost across the board.

They added that there have been new muscles built around pricing, and they think Medtech fundamentals are strong. However, the analysts noted that the current valuation keeps them with an in-line view.