Amid inflation concerns and economic uncertainty going into 2023, one health care sector is poised to reap dividends for investors: med-tech companies.
That’s the assessment from Canaccord Genuity’s William Plovanic who calls med-tech “a defensive sector with improving fundamentals.”
He is particularly bullish on companies in the sector focused on cardiovascular, neuromodulation, respiratory, ophthalmology, oncology, and organ transplant.
“We expect durable demand despite a potentially looming recession,” Plovanic wrote in a recent note to investors. “We expect that growth could accelerate in 2H/23 as [foreign exchange] headwinds annualize and healthcare staffing issues gradually decline.”
He added that given the aging population of the US as well as the acute conditions many med-tech companies’ products treat, a recession wouldn’t have much of an impact and “med-tech is a good place for investors to weather the impending storm.”
The long term is also promising for health technology companies, Plovanic says, due to the fact that by 2030, the entire Baby Boomer population will be 65 and older and make up 21% of the US population.
More immediately, the biggest challenge for med-tech companies in 2023 are healthcare staffing shortages, though Plovanic expects it to abate as the year goes on.
ShockWave (SWAV) markets intravascular lithotripsy technology for calcified plaque in patients with peripheral vascular, coronary vascular, and heart valve diseases. Year to date, shares are up ~9%.
Plovanic has a price target of $247 (~18% upside based on Friday’s close). He noted that the arrival of new products will serve to boost average selling prices and drive overall growth for the company. He cited the new M5+ device to treat calcium buildup in peripheral arteries and the upcoming launches of L6 in H1 2023 and an improved coronary C2+ in the second half of the year.
TransMedics (TMDX) provides organ transplant therapy for end-stage organ failure patients. Year to date, the stock is up 192%.
Plovanic’s price target is $68 (14% upside). He noted that in 2022, TransMedics was not able to keep up with demand for its products. However, the company has focused on hiring more personnel and increasing its clean room capacity.
The analyst spoke highly of the company’s National OCP program, which makes it easier to deliver organs across the country. Plovanic noted that TransMedics (TMDX) has created 15 geographic launch areas for the program, is adding support staff, and intends to add transportation capabilities with a flight logistics provider.
Nevro (NVRO) is known for the Senza spinal cord stimulation system (“SCS”) for chronic pain. Year to date, the stock is down ~53%.
Plovanic has a $67 price target (~67% upside). He sees 14% year-over-year revenue growth in 2023.
Plovanic noted Nevro’s (NVRO) recently launched HFX iQ system is the first SCS to have artificial intelligence capabilities as it can adjust based on an individual’s perception of pain. He added this benefit will help the company’s sales reps in gaining new accounts.
Finally, the analyst said there are other companies in the space that he views as a buy — such as Boston Scientific (NYSE:BSX), Penumbra (PEN), Inari Medical (NARI), and iRhythm Technologies (IRTC) — but investors should ideally wait to purchase until a share pullback or a business momentum boost.