Healthcare stocks have been among the leaders in the market rebound since the December lows. These five investing experts, and contributors to MoneyShow.com, believe this trend will continue and highlight their current favorite stocks in life sciences and medical devices.
Infection control in hospitals is a serious issue. According to the Leapfrog Group, an organization whose stated purpose is to advance health care transparency for consumers, one in every 25 U.S. hospital patients contacts an infection daily to cause 90,000 deaths per year, explains Hilary Kramer, editor of GameChangers.
Infections also cost billions of dollars, adding expenses to an industry under pressure to control them. Controlling infections is where
The company is the largest pure play infection control company, with leading market positions in each of its operating segments. This includes Medical segments, consisting primarily of equipment used to clean and process devices used in endoscopy procedures. This is the largest segment, accounting for 54% of the company’s revenues.
The Life Sciences segment consists of water purification systems and filters used in applications such as dialysis, accounting for 28% of revenues. The final segment is Dental, consisting primarily of sanitary disposable products, accounting for 18% of revenues. Increased patient visits should drive low to high single-digit growth across the company’s product lines. Cantel intends to supplement this growth through new products, market expansion and strategic acquisitions. In fact, the company has completed 35 acquisitions since 2000.
Cantel’s growth strategy has served the company well over the years, with sales growing 16% per year from 2003 through 2018 and operating income increasing 20% per year over the same period. The shares are well off their all-time high of over $130 a share set in May 2018. Importantly, the growth story at Cantel remains intact.
Cost pressures will fade in the July 2020 fiscal year, allowing the company to earn $3 a share on another year of 8% revenue growth, aided by the recently completed $32 million acquisition of Omnia S.p.A., a maker of dental consumables based in Italy. Once the market has visibility to this $3 in EPS, I expect my $92 a share price target to be achieved. Cantel Medical is a buy below $82.
Doug Gerlach, SmallCap Informer
LeMaitre Vascular is a provider of devices, implants and services for the treatment of peripheral vascular disease, a condition that affects more than 200 million people worldwide. The company develops, manufactures and markets disposable and implantable vascular devices to address the needs of vascular surgeons.
LeMaitre’s diversified product portfolio consists of devices used in arteries and veins outside of the heart, such as shunts, catheters, clips, glue, injectors, patches, and grafts. It offers the #1 or #2 products by market share in 12 of 15 vascular product lines, and in total controls about 20% of the approximate $5 billion peripheral vascular market. The company sells to 4,500 hospitals worldwide.
In the 21 years since 1998, LeMaitre has made 21 acquisitions. Historically, LeMaitre has operated in lower-rivalry niche product segments, such as in the markets for biologic vascular patches and valvulotome devices where the number of competitors has historically been limited.
We are modeling 9% average sales growth and 12% average EPS growth through 2022, providing a margin of safety if results meet management’s guidance. Continued margin expansion is expected to help EPS grow faster than sales.
The stock's current P/E is 22.6, which is 67% of the average five-year P/E. On the downside, a low P/E of 16 (a level not seen since 2010) and flatlined EPS equate to a low price of $16.60. Based on a future high P/E of 25, the stock could reach $46 by 2022. An average yield of 1.37% helps boost the average annual expected return to 15.6%, with a 3.3-to-1 upside-to-downside ratio.
Mike Cintolo, Cabot Top Ten Trader
Glaukos developed a solution to help people suffering from a glaucoma, a condition where high pressure in the eye results from lack of ocular fluid drainage. Glaukos came up with the iStent insert procedure, which involves inserting a very tiny stent in the eye during cataract surgery.
Approved in 2012, iStent has been a big growth driver but is now being phased out in favor of the next-gen iStent Inject platform (injectable two-stent therapy); the commercial launch occurred in Q3 2018 and has limited new doctor signups since Glaukos is mainly focused on training existing docs on the new procedure.
At recent conferences, management said around 50% of the customer base is trained, and from that base analysts are projecting around 90% of customers will be on the new platform by the end of 2019. Another big positive catalyst for Glaukos was the voluntary exit of competitor Alcon from the market last year, when its CyPass Micro-Stent was shown to be a flop (no better than cataract surgery alone).
That allowed Glaukos to snag some sales reps and gain market share, a good thing since another competitor (Ivantis) just completed a soft launch for its new product Hydrus (only about a dozen sales reps). Given all the variables, analysts expect a dip in growth when Q4 2018 results come out on February 27 (13% revenue growth expected).
But investors are looking ahead, and with training making progress and lots of Alcon sales to grab, Wall Street sees the top line surging 27% this year, a figure that could easily prove conservative if management pulls the right levers. If you’re game, you can start a position here and see what earnings brings.
Richard Moroney, Dow Theory Forecasts
We’re adding the stock to our Focus List of top buy recommendations because we see a lot of reasons for optimism about the shares. Here are just a few:
1) Thermo Fisher operates in four business units: laboratory products and services, analytical instruments, specialty diagnostics and life-sciences solutions. Most of Thermo Fisher’s operations assist companies doing pharmaceutical, genetic, or industrial research. Such diversity limits Thermo Fisher’s exposure to weakness in any individual slice of the health-care sector.
2) Thermo Fisher’s business mix allows it to target multiple end markets. In the first three quarters of 2018, the company generated 38% of its revenue from drug and biotechnology firms, with the rest coming from health-care providers and diagnostic labs (21%), industrial and applied science firms (19%), and academic or government researchers (22%).
3) Thermo Fisher, with sales of nearly $24 billion in the last year and a stock-market value of nearly $100 billion, is the giant of the life-sciences group, more than twice the size of its largest competitor. In this highly fragmented industry, most rivals focus on one or two specialties, while Thermo can provide turnkey product and service packages other companies cannot.
4) Since Jan. 2, when
5) Thermo Fisher trades at a low premium; the stock sells at 22 times trailing earnings, 11% below the median for life-sciences companies in the S&P 1500 Index and 24% below its own three-year average.
The firm grew December-quarter earnings per share 16% to $3.25 excluding special items, exceeding the consensus by $0.07. Sales, up 7% to $6.51 billion, also topped the consensus.
The company also agreed to sell its pathology division for $1.14 billion in cash to PHC Holdings, based in Japan. PHC supplies microscope slides, instruments, and consumables. Reflecting that divestiture, the company expects 2019 per-share profits of $12.00 to $12.20, up 8% to 10%, on revenue growth of 2% to 4%. Analysts anticipated earnings of $12.25 per share, up 11%, and 4% higher sales. Thermo Fisher is on our Focus List of buy recommendations.
Freestyle Libre is a wearable, sensor-based continuous blood glucose monitoring system. An advance over other self-monitoring products that does not require finger sticks, the Libre has received CE Mark certification for its next-generation system, which will allow it to be marketed in the EU.
The Libre helped drive revenue in the Diabetes Care segment to $530 million in 4Q18, an increase of 32%. Abbott has expanded production of the Libre in order to meet demand from patients with Type 2 as well as Type 1 diabetes.
Within electrophysiology, sales have been driven by strong demand for cardiac mapping and ablation catheters. Within the structural heart business, sales drivers include the Amplatzer PFO Occluder and the MitraClip, which is used to repair leaky heart valves.
Two recently approved products are also likely to drive growth in 2019: the HeartMate 3 left ventricular assist device, which was approved by the FDA in October 2018; and the TactiCath Contact Force Ablation Catheter, which was approved in January.
Abbott reported 4Q18 results on January 23. Adjusted EPS of $0.81 rose 9.5% from the prior year and matched the consensus estimate. Net sales for the quarter rose to $7.8 billion, up 2.3% as reported and 6.4% on an organic basis.
Abbott has established new guidance for 2019. It expects organic sales growth of 6.5%-7.5%, which excludes the impact of foreign exchange. It also expects adjusted EPS of $3.15-$3.25. Based on the updated guidance, we are maintaining our 2019 adjusted EPS estimate of $3.22. We are setting a 2020 estimate of $3.65.
Through increased marketing spending, Abbott is supporting new growth drivers such as the FreeStyle Libre and the Alinity diagnostic system. It is also building new growth platforms by integrating the acquisitions of St. Jude Medical and
