The Health Care Select Sector SPDR ETF NYSEARCA: XLV) is down 6.48% year-to-date. Here are the biggest sector components and their return this year:
- UnitedHealth Group (NYSE: UNH): +7.48%
- Johnson & Johnson (NYSE: JNJ): +0.77%
- Pfizer (NYSE: PFE): -14.02
- AbbVie (NYSE: ABBV): +7.05
- Eli Lilly (NYSE: LLY): +10.22
Those numbers help explain the broader sector performance. However, a wide variation of business models within the sector also plays a role. For example, health insurers are among the best-performing sub-industries within medical. While UnitedHealth has clearly been strong, stocks like Centene (NYSE: CNC) and Cigna (NYSE: CI) are doing even better.
So where does that leave medical device makers?
Medtronic manufacturers a diversified portfolio of products, including diabetes treatments, insulin pumps, and cardiovascular devices, such as pacemakers. With a market capitalization of $124.34 billion, it’s the biggest pure-play medical gear maker.
The stock has returned 4.58% in the past month, an improvement over its one-year and even three-year returns. The stock suffered more than some in other industries due to Covid restrictions, as elective surgeries were postponed. It did not regain its January 2020 levels until April 2021.
More recently, it’s been in correction mode for nearly a year, and is down 5.5% since its last earnings report, in late May.
Medtronic is due to report on August 23, before the opening bell. Analysts expect earnings per share of $1.12 on revenue of $7.43 billion. According to MarketBeat’s earnings history for the stock, Medtronic missed both top-and bottom-line views in the most recent quarter.
MarketBeat’s analyst ratings show that Wall Street has a “hold” rating on the stock, with a price target of $117.13, which would mark a 25.17% upside. Given that those price targets take a 12-to-18-month view, investors should carefully consider whether they want to deploy cash to a stock that’s currently languishing well below that number. That’s not just true for Medtronic, but for any stock.
Meanwhile, fellow medical device maker Intuitive Surgical has posted the following returns:
- One month: +14.52%
- Three months: +6.35%
- Year-to-date: -33.45%
The company is well known for its da Vinci robotic surgical systems. Like Medtronic, Intuitive Surgical’s growth slowed in 2020 due to curtailment and postponement of many procedures. Growth rates have been erratic since an initial rebound that began in the last quarter of 2020, but analysts still have optimism about the company’s long-term prospects.
It’s expected that Covid will continue receding, at least in virulence, and the uptick in medical procedures that occurred in the most recent quarter will also continue. In addition, analysts who cover the company expect to see growing adoption of Intuitive Surgical’s products, particularly among existing customers.
Earnings Rebound Ahead?
Wall Street is eyeing a 6% earnings decline for the full year of 2022, to $4.65 per share. However, that’s expected to bounce back next year, with earnings of $5.48 per share.
Intuitive Surgical topped analysts’ earnings views in 12 of the past 13 quarters. It met views in the quarter ended in December 2021. The last time the company missed earnings expectations was in April 2019, according to MarketBeat data.
In a sign that the company itself is eyeing growth, it is currently planning to expand its headquarters in Sunnyvale, California, just two years after a previous expansion.
MarketBeat analyst ratings show a “moderate buy” designation for the stock, with a price target of $273.23, representing an upside of 14.91%. Since July 15, 10 analysts lowered their price target on the stock.
So is Intuitive Surgical a buy, given the long-term expectations?
As always, you must consider what other holdings are in your portfolio, and what your goal is with any particular stock. For example, if you already have high exposure to another medical gear maker, such as Medtronic, decide whether it’s wise to add a company with a similar business model. As we saw with both companies getting slammed due to Covid, it’s not unusual for an entire sector or sub-industry to suffer because of a development outside the companies control.