Home Investment Zimmer Biomet vs Intuitive Surgical: Which Medical Device Stock is Primed for Upside in 2021?

Zimmer Biomet vs Intuitive Surgical: Which Medical Device Stock is Primed for Upside in 2021?

by admin

What does 2021 have in store for the medical device space? The resurgence of COVID-19 cases continues to be a major concern for medical device makers, who took a huge hit last year as the pandemic led to the postponement/cancellation of elective procedures.

Canaccord Genuity analyst Kyle Rose argues that 2021 could be “a story told in two acts,” when it comes to medical devices and services sector. He expects the first half of this year to look similar to the last six months of 2020, with “rolling procedural volatility” on a regional and local basis reflecting the impact of persistent COVID-19 headwinds. That said, Rose calls for a robust second half backed by wider vaccine availability, economic reopening, easy comparables as well as deferred and pent-up procedural demand.

Bearing in mind these dynamics, we will use TipRanks’ Stock Comparison tool to place Zimmer Biomet alongside Intuitive Surgical and choose the more compelling stock.

Zimmer Biomet Holdings (ZBH)

Zimmer is a dominant player in the knee and hip replacement market and also sells other products in the dental, sports medicine, extremities and trauma spaces. The pandemic had a profound impact on orthopedic procedures and thus crushed demand for Zimmer’s products last year.

A modest recovery in certain regions helped the company deliver better-than-anticipated 3Q results, with revenue growth of 2% to $1.93 billion and a 2.3% rise in adjusted EPS to $1.81. But the spike in COVID-19 cases posed a major roadblock for Zimmer’s 4Q performance, with the company revealing a slowdown in its procedure volumes during two investor conferences held in December.

Despite the challenges faced by Zimmer, Needham analyst Michael Matson called Zimmer his top pick for 2021 in a research note to investors. Matson argues that while Zimmer’s 2020 revenue is likely to fall by double-digits, he believes that the company still outperformed many of its orthopedics rivals and gained market share in the reconstruction space in 2Q and 3Q 2020.

Matson highlights certain aspects working in favor of Zimmer, including the growth prospects for Rosa (a robotically-assisted knee replacement surgery platform), which gained an installed base of over 200 systems in 3Q, new knee implant products that are gaining traction and the sales momentum of the Persona Revision knee system. (See ZBH stock analysis on TipRanks)

The 5-star analyst also anticipates stronger EPS growth in the next few years given that the company expects its operating margin to reach 30% by the end of 2023. Furthermore, he pointed out three recent small tuck-in acquisitions (Incisive, Relign and A&E Medical) made by Zimmer and sees mergers and acquisitions as another catalyst in 2021.  

All in all, the analyst reiterated a Buy rating and raised his price target to $185 from $168 given Zimmer’s upcoming smart knee implant launch. The company is collaborating with Canary Medical to launch its Persona-IQ smart knee as early as the first half of this year.

A majority of analysts covering Zimmer echo Matson’s optimism, with the stock boasting the Street’s Strong Buy analyst consensus backed by 18 Buys, 2 Holds and 1 Sell. While Matson’s $185 price target indicates an upside potential of about 16%, the Street’s average price target of $167.20 suggests that the stock could rise 5.2% in the year ahead. Shares have advanced 6% over the past year.    

Intuitive Surgical (ISRG)

Widely known for its da Vinci surgical systems, Intuitive Surgical is a leading player in the robotic-assisted surgery space. Like its peers in the medical devices sector, the company also felt the deep impact of the pandemic on its sales.

Global da Vinci procedures rose about 7% year-over-year in 3Q 2020 amid what the company called a “partially recovery” from COVID-19 led disruptions. However, shipments of the da Vinci surgical systems were still down 29% to 195 in 3Q. Overall, 3Q revenue declined 4.5% to $1.08 billion and adjusted EPS plunged over 19% to $2.77, though both metrics were ahead of analysts’ expectations.

The company cautioned in October that it anticipates lower year-over-year system placements for the remainder of 2020, given the uncertainty surrounding the impact of the pandemic on hospital spending. (See ISRG stock analysis on TipRanks)

Generally, recurring revenue, which includes instruments and accessories revenue and service revenue, accounts for over 70% of Intuitive’s overall revenue. Recurring revenue is tied to procedure volumes, and higher COVID-19 cases could derail the recovery that the company experienced in 3Q procedures. ISRG expressed concerns on the 3Q conference call that the trends seen in the quarter may not be indicative of future trends, owing to “potential COVID surges, patients’ willingness to have procedures done and a restricted diagnostic pipeline.”

Last month, Morgan Stanley analyst David Lewis downgraded Intuitive to Hold from Buy and lowered the price target to $780 from $785. The 5-star analyst cited valuation as the reason for the downgrade, while acknowledging that Intuitive was the best performer in large-cap devices in 2020.

Lewis stated that he is “very bullish” on the company’s structural position and believes that 2021 consensus estimates are too low. However, he noted that tractions for the company’s Ion and SP systems have been incrementally slower than forecasted, which makes greater clarity on the pipeline “necessary to justify further upside.”

The rest of the Street is cautiously optimistic about the stock, with a Moderate Buy analyst consensus based on 4 Buys, 6 Holds and 1 Sell. With shares up about 36% over the past year, the average price target of $696.25 suggests a possible downside of 14.4% from current levels.

Bottom Line

The Street appears to be optimistic about Zimmer Biomet’s growth this year, given the pent-up demand for ortho procedures and the company’s leading position in the hip and knee implants markets. While long-term prospects for Intuitive Surgical look promising, Zimmer stock appears to be a better pick, with many analysts covering Intuitive currently expecting a possible downside in the stock this year.  

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment

related posts

Leave a Comment