Thanks to cutting-edge technology, medical stocks are effectively reshaping the healthcare sector. The industry is experiencing significant growth, driven by increasing demand for advanced healthcare solutions, particularly in diagnostics, surgeries, and patient monitoring.
Given this backdrop, investors looking for growth opportunities could take a look at these three fundamentally robust medical device stocks: Hologic, Inc. (HOLX), Avanos Medical, Inc. (AVNS), and Embecta Corp. (EMBC). These companies are shaping healthcare delivery’s future and benefitting from technological advancements.
The medical devices industry is poised for steady growth as its market size is anticipated to reach $893.07 billion by 2029, exhibiting a CAGR of 7%. Moreover, by 2030, the global annual medical device sales are forecasted to hit $800 billion.
Moreover, innovations like AI-powered diagnostic tools, wearable health devices, and robotic surgery systems are revolutionizing patient care. The FDA has already authorized 950 AI/ML-enabled medical devices, which promise faster diagnoses, more precise treatments, and improved patient outcomes.
Considering these favorable trends, let’s look at the fundamentals of the above-mentioned Medical - Devices & Equipment picks in detail:
Stock #3: Hologic, Inc. (HOLX)
HOLX is a medical technology company focused on improving women’s health and well-being through early detection and treatment. It is a developer, manufacturer, and supplier of worldwide diagnostics, medical imaging systems, and surgical products. The company operates through four segments: Diagnostics; Breast Health; GYN Surgical; and Skeletal Health.
On July 25, HOLX acquired Endomagnetics Ltd., a privately held UK-based developer of breast cancer surgery technologies, for $310 million. This acquisition enhances access to Endomag’s innovative technologies and diversifies HOLX’s expanding interventional breast health portfolio.
In the fiscal third quarter that ended on June 29, 2024, HOLX’s total revenue increased 2.7% year-over-year to $1.01 billion with a non-GAAP gross margin of 61.1% (up 30 bps year-over-year). The company reported income from operations of $244 million, indicating a significant growth from the prior year quarter.
In addition, its adjusted EBITDA increased 8.5% year-over-year to $338.50 million. HOLX’s non-GAAP net income came in at $250.70 million, up 8.4% year-over-year, while its non-GAAP EPS grew 14% from the year-ago value to $1.06.
For the fourth quarter of the fiscal year 2024, the company’s revenue is projected to be between $970 million and $985 million, with non-GAAP EPS anticipated to fall between $0.97 and $1.04.
The consensus revenue estimate of $977.49 million for the fiscal fourth quarter (ended September 2024) represents a 3.4% increase year-over-year. The consensus EPS estimate of $1.01 for the same quarter indicates a 13.9% improvement year-over-year. The company has an impressive surprise history; it surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
Over the past three and five years, HOLX’s total assets grew at CAGRs of 1.2% and 6.4%, respectively. Also, the company’s normalized net income and operation income (EBIT) have increased at a CAGR of 16.8% and 10.9%, respectively, over the past five years.
Shares of HOLX have gained 14.3% over the past year to close the last trading session at $79.22.
HOLX’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
HOLX has a B grade for Growth and Quality. It is ranked #14 out of 134 stocks in the Medical - Devices & Equipment industry. Click here to see the additional ratings for HOLX (Value, Momentum, Stability, and Sentiment).
Stock #2: Avanos Medical, Inc. (AVNS)
AVNS is a medical device company that focuses on delivering medical device solutions. The company conducts its business in one segment, which provides its medical device products to healthcare providers and patients globally with manufacturing facilities.
AVNS’ net sales for the second quarter (ended June 30, 2024) increased marginally year-over-year to $171.70 million. Its non-GAAP operating profit from continuing operations grew 18.5% from the prior year’s quarter to $21.80 million. The company’s net income stood at $1.80 million compared to the prior-year quarter’s loss of $68.10 million, while its EPS came in at $0.04 versus a loss of $1.46 per share last year.
In addition, AVNS’ adjusted EBITDA from continuing operations rose 17% from the year-ago value to $26.80 million. Its free cash flow came in at $21.90 million compared to a year-ago net loss of $6.6 million.
As per the fiscal year 2024 outlook, AVNS forecasts revenue from continuing operations to range between $685 million and $705 million. The company also expects adjusted EPS from continuing operations between $1.30 and $1.45 and adjusted gross margins from continuing operations to fall in the range of 59.5%-60.5%.
Street expects AVNS’ revenue for the fiscal third quarter (ended September 2024) to increase 2.4% year-over-year to $175.33 million. Its EPS for the same period is expected to register a 17.8% growth from the prior year, settling at $0.35. In addition, it surpassed the consensus revenue in each of the trailing four quarters, which is promising.
Moreover, AVNS’ EBITDA and net income have grown at CAGRs of 32.7% and 47.5%, respectively, over the past three years. In addition, its EPS increased at 60.6% CAGR over the same time frame.
Over the past three months, the stock has surged 18.5%, closing the last trading session at $23.02.
It’s no surprise that AVNS has an overall rating of B, equating to a Buy in our POWR Ratings system. It has an A grade for Growth and a B for Value. Out of 134 stocks in the same industry, AVNS is ranked #12.
Beyond what is stated above, we’ve also rated AVNS for Momentum, Stability, Sentiment, and Quality. Get all AVNS ratings here.
Stock #1: Embecta Corp. (EMBC)
EMBC is a global diabetes care company focusing on providing various solutions to enhance the health and well-being of people with diabetes. It has a portfolio of products that include pen needles, syringes, safety injection devices, and digital applications to assist people with managing patient’s diabetes.
On September 3, EMBC received clearance from the U.S. Food and Drug Administration (FDA) for its proprietary disposable insulin delivery system, required for adults who require insulin, both type 1 (T1D) and type 2 (T2D) diabetes, to be managed. This clearance aligns with the company’s vision and focuses on developing a patch pump, addressing obstacles to adopting pump therapy for people who use insulin daily to manage their diabetes.
For the third quarter of 2024, which ended on June 30, EMBC’s revenue stood at $272.50 million. Its adjusted operating income grew 4.4% from the year-ago value to $83.30 million. Its adjusted net income for the quarter amounted to $43 million or $0.74 per share, representing an increase of 8% and 7.2%, respectively, from the same period last year. Also, the company reported an adjusted EBITDA of $99.20 million, indicating a 15.5% growth from the prior year’s quarter.
The company has updated its fiscal year 2024 financial guidance, increasing its adjusted gross margin projection to a range of 65.25% to 65.50%, up from the previous estimate of 64.5% to 65%. Additionally, it adjusted its non-GAAP EPS guidance to a new range of $2.30 to $2.35, slightly higher than the prior forecast of $2.20 to $2.30.
Moreover, its adjusted EBITDA margin is expected to range between 31.25%-31.50%, an increase from the previous estimate of 31%-31.5%. Meanwhile, EMBC projects its revenue to fall in the range of $1.11 billion to $1.12 billion.
Analysts expect EMBC’s revenue and EPS for the current year (ending September 2024) to be $1.11 billion and $2.39, respectively. For the fiscal year 2025, its revenue is expected to grow marginally from the prior year to $1.12 billion, and its EPS is projected to come in at $2.27.
Over the past year, EMBC’s net income has increased at a CAGR of 47.7%, while its EPS grew at 45.3% CAGR.
EMBC shares have surged 10.1% over the past three months to close the last trading session at $13.29.
EMBC’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It also has an A grade for Value and Quality and a B for Growth. Within the Medical - Devices & Equipment industry, it is ranked #3. Click here to see EMBC’s ratings for Momentum, Stability, and Sentiment.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
HOLX shares were trading at $79.88 per share on Friday morning, up $0.66 (+0.83%). Year-to-date, HOLX has gained 11.80%, versus a 20.77% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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