Needham sees BSX, CNMD, RMD beating Street, despite medtech slow down (NYSE:BSX)

Needham estimates medtech sales grew less than expected in Q1, but that Boston Scientific (NYSE:BSX), CONMED (NYSE:CNMD), ResMed (NYSE:RMD) and Surmodics (NASDAQ:SRDX) should still be able to beat the Street when they roll out their respective quarterly reports later this month.

The investment firm said its models indicate that the medtech market only grew by 5.3% in Q1 versus 8.3% in Q4 2023. Needham added, however, that its Google Trends tracker showed searches for elective procedures slowed year-over-year to (2%) in Q1 from 4% in Q4, “which may mean that there will be fewer medtech companies that beat consensus and more that miss consensus in Q1 2024 compared to Q4 2023.”

Despite the slowdown, Needham expects sector bellwether Boston Sci, which is set to report on April 24, to beat consensus, due to new product launches and management’s “conservative” guidance, and to raise its 2024 forecast.

Consensus revenue estimates are currently $3.68B and $15.59B for Q1 and 2024, respectively. Boston Scientific has guided for 2024 revenue of between $15.45B and $15.59B, according to Needham.

Needham noted that it sees Boston Sci’s recently approved FARAPULSE PFA system becoming a “significant growth driver and source of upside in 2024 and beyond.” It added that it was “confident” in the company seeing “sustained strong growth” for its WATCHMAN product, despite the launch of Abbott’s (ABT) Amulet.

CONMED is likewise expected to beat consensus with its Q1 report, which is also slated for April 24. Needham also expects CONMED to raise its 2024 guidance, despite the launch of Intuitive Surgical’s (ISRG) da Vinci 5 robotic surgical system.

Consensus estimates for CONMED currently have it reporting Q1 revenue of $307M and 2024 revenue of $1.35B, while the company has guided for 2024 revenue of $1.34B to $1.37B.

Needham said that while there were concerns about CONMED’s AirSeal facing competition from da Vinci 5, it believes AirSeal “is likely to maintain its competitive advantage due to its unique properties and intellectual property.”

It also sees CONMED’s newer orthopedic offerings allowing it to “hold, or even gain, sports medicine market share,” while Biorez should serve as a “halo or door opener” for CONMED representatives to build new relationships with surgeons and increase sales of its other products.

ResMed, which has been benefitting from rival Philips’ (PHG) recall of its CPAP machines, is also seen as beating consensus when it rolls out its fiscal Q3 report on April 25. The consensus revenue estimate for the quarter is $1.17B. Needham noted that the company doesn’t issue guidance.

Needham also noted that ResMed’s stock has been under pressure due to ongoing concerns that the popularity of GLP-1 weight loss drugs will eventually cut into its sleep apnea device business.

“However, ResMed has indicated it is tracking thousands of patients on GLP-1s and using CPAPs and so far the data actually shows increases in adherence and resupply rates, which we find encouraging,” Needham said.

That said, Needham expects Eli Lilly’s (LLY) high-profile clinical trial of its drug tirzepatide, also known as Mounjaro and Zepbound, to show that resulting weight loss “does reduce sleep apnea severity to some degree.” It expects ResMed’s earnings conference to focus in part on the potential impact of that study, along with the Philips’ recall.

Surmodics is also expected to beat the Street, which is estimating fiscal Q2 revenue of $28.9M for the company. Needham also sees management raising 2024 guidance. The Street is currently expecting fiscal 2024 revenue of $120M. Surmodics has guided for $117M to $121M.

Medtech stock performance, meanwhile, has also lagged, with large caps up 3.3% year-to-date compared to the S&P 500 (SP500), which has risen 9%. Large-cap orthopedic stocks have performed the best, up 3.2% since the beginning of the year, followed by cardiovascular and medical supply stocks, which have edged up 2.9% and 0.5%, respectively. On the flip side, diagnostic stocks have retreated 2.2%.

Small and mid-cap stocks have also underperformed, rising only 0.5% year-to-date, compared with the Russell 2000, which is up 0.8%. Cardiovascular and medical supplies stocks were the big gainers, climbing 7.6% year-to-date, while orthopedic stocks slid 5% and diagnostics stocks dropped 11.3%.

Needham’s top picks its medtech coverage universe are still Enovis (ENOV) and Alphatec (ATEC), with SI-BONE (SIBN), Paragon 28 (FNA), Boston Sci (BSX), Glaukos (GKOS), AtriCure (ATRC), Alcon (ALC), OrthoPediatrics (KIDS) and CONMED (CNMD) rounding out the top ten. Veracyte (VCYT) is ranked eleventh, followed by RxSight (RXST), NeoGenomics (NEO), Azenta (AZTA), Dentsply Sirona (XRAY), iRhythm Technologies (IRTC), Inari (NARI), LivaNova (LIVN), ResMed (RMD) and Artivion (AORT).