Last year, Morgan Stanley upgraded its outlook for the U.S. MedTech sector to “Attractive,” believing the concerns around GLP-1s were already reflected in stock prices and that fundamentals were strong.
However, this view didn’t play out as expected, mainly due to unforeseen, company-specific issues, such as DexCom, Inc’s (NASDAQ:DXCM) unexpected Q2 channel mix challenges, Edwards Lifesciences Corporation’s (NYSE:EW) slowdown in TAVR procedures, TransMedics Group, Inc’s (NASDAQ:TMDX) seasonal impacts, and iRhythm Technologies, Inc’s (NASDAQ:IRTC) DOJ investigation.
Morgan Stanley is bullish on the MedTech industry as volumes and pipelines continue to be strong into 2025 despite a shakey 2024.
The analyst also adds that MedTech seems less exposed to potential delays from extended FDA regulatory pathways than other healthcare sectors, given its lower reliance on PMAs and clinical-trial-heavy products.
The analyst adds that while single-stock surprises are inevitable, the overall outlook for the sector heading into 2025 remains favorable.
Morgan Stanley upgraded the outlook on Intuitive Surgical Inc (NASDAQ:ISRG) and Stryker Corp (NYSE:SYK), moving both to Overweight from Equal-weight, citing:
- ISRG: Strong demand for the Da Vinci Dv5 system is expected to exceed market expectations for installed base growth.
- SYK: While orthopedic procedure volumes face some uncertainty, an estimated $1 billion—$2 billion backlog could drive growth in 2025. The company also benefits from ongoing M&A opportunities and product innovations.
Additional updates:
- Procept BioRobotics Corporation (NASDAQ:PRCT): Initiated at Overweight, driven by increasing demand and higher pricing for Hydros in operating room efficiency, particularly in lower-volume BPH centers.
- Tandem Diabetes Care Inc (NASDAQ:TNDM): Upgraded to Overweight with a $45 price target, as its valuation (below 2x sales) seems overly compressed. Expansion into type 2 diabetes in 2025 could double its total addressable market.
- Globus Medical Inc (NYSE:GMED): Upgraded to Overweight with a $100 price target as merger concerns ease and strong above-market growth persists.
- Embecta Corp (NASDAQ:EMBC): Raised to Equal-weight from Underweight, factoring in the discontinuation of certain risks and potential upside from GLP-1 pen needle demand.
The analyst is more cautious about Glaukos Corporation (NYSE:GKOS), downgrading it to Underweight from Equal-weight. The analyst notes that iDose is a strong product with promising long-term potential, but the current valuation limits the upside compared to other stocks. Additionally, although the pipeline includes exciting projects like Wet AMD, they remain years away from fruition.
Morgan Stanley has downgraded Nevro Corp (NYSE:NVRO) to Underweight from Equal-weight. Despite trading near record lows, the analyst expects weak demand for spinal cord stimulation devices to persist, with limited opportunities for cost reductions.
The analyst remains cautious about STAAR Surgical Company (NASDAQ:STAA). While the company is executing well, it faces tough conditions in the refractive surgery market, particularly in China and the U.S.
Lastly, Morgan Stanley is cautious about Baxter International Inc. (NYSE:BAX) because it offers fewer upside opportunities than peers and has a more conservative outlook on operating margins.
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