Dive Brief:

• Improving fundamentals, including the return of healthcare employment to pre-pandemic levels, suggest medtech growth may exceed “expectations,” according to KeyBanc Capital Markets analysts.
• The analysts said they are “leaning into increased medtech exposure” after determining that several of the factors that have hampered the industry are easing. Data from March “potentially confirmed an inflection” in procedure trends, while staffing constraints are subsiding and inflation is moderating, they reported.
• Those positive trends are offset by concerns about hospital capital spending in a worsening economy, the analysts added. KeyBanc named Becton Dickinson and Conmed as stock recommendations.

Dive Insight:

The medtech industry’s attempt to recover from the pandemic-related slump of 2020 has been met with setbacks — from virus variants that curtailed procedure volumes to economic pressures that curbed growth. Now, KeyBanc analysts estimate a more comprehensive recovery finally may be underway.

That view is underpinned by data on forces that dented a recovery last year. While KeyBanc’s tracking of hospital activity detected signs of improvement in the first two months of 2023, the analysts said they were unsure if the trend just reflected the easier comparison to the omicron-affected start of last year. Still, the analysts noted data for March suggest the recovery may endure. 

At the same time, hospital staffing shortages appear to be easing. KeyBanc found that total U.S. healthcare employment is now above pre-pandemic levels. Hospital employment remains below pre-COVID highs but is improving, with staffing rising by 10,900 month over month in March, the analysts found. The March increase followed a 19,400-job gain in February.

The staffing data also suggest hospitals now are equipped to perform more procedures than in 2022, KeyBanc said. For a full recovery, manufacturers also need to be able to get medical devices to hospitals at a reasonable cost, and there are signs that is improving as well, the analysts added. 

“Broader macro headwinds around labor/raw materials inflation, supply chain disruptions, and unfavorable [foreign-exchange fluctuations] still appear to be moving in the right direction. We remain encouraged that a moderating inflationary environment could be a positive for margins vs. expectations and many companies likely took a conservative approach towards inflation in setting initial 2023 guidance,” the analysts wrote.

Based on trends so far in 2023, the analysts are “leaning into a couple of more companies that are more tied to hospital activity and procedural volumes.” Specifically, the analysts noted that BD is “finally capable of sustaining a breakout,” and Conmed’s “financial profile could significantly improve over the next few years.”