MedTech Third Quarter Earnings Season

Investing.com reports that the third quarter earnings season for MedTech stocks is crucial after a tumultuous second quarter, prompting investors to adjust expectations.

According to analysts at Citi Research, MedTech companies have exhibited some recovery since the previous quarter’s corrections, but investor caution prevails due to the traditionally challenging nature of the third quarter for the sector.

Key stocks in medical technology are set to announce earnings, influenced by macroeconomic factors, Federal Reserve rate decisions, and developments in product pipelines and regulatory outcomes.

The broader MedTech sector, represented by the S&P Equipment & Supplies Index, has narrowed its gap with the S&P 500 year-to-date, though it still lags behind, with an 11% increase versus the broader market’s 20%.

This rebound is primarily driven by valuation resets post-second quarter, leading to more attractive price levels.

Citi Research remains cautious, highlighting the significance of future guidance, especially for 2025, which may heavily influence near-term stock prices.

Attention is on companies like Becton Dickinson (NYSE:BDX) and Edwards Lifesciences (NYSE:EW). Becton Dickinson’s stock was upgraded to “buy” after its acquisition of Critical Care assets from Edwards, which boosts earnings estimates.

Despite being range-bound for years, analysts see potential for a breakout due to achievable FY25 guidance, alongside a significantly compressed forward price-to-earnings ratio, indicating potential outperformance.

Conversely, Edwards Lifesciences, while under positive watch, faces uncertainties following its guidance for 2025 earnings after divesting its Critical Care unit. Consequently, Citi lowered its price target from $83 to $77 due to conservative earnings expectations.

Tandem Diabetes (NASDAQ:TNDM) is on negative catalyst watch, with analysts concerned about its ability to meet third-quarter guidance. New patient share in the U.S. is expected to remain stable, making management’s forecasts for patient share expansion overly optimistic.

With this backdrop, Citi analysts express caution regarding Tandem Diabetes’ capability to exceed earnings expectations this quarter.

On a larger scale, while specific companies face product-specific challenges, macroeconomic conditions are significant for the sector. Analysts are awaiting clarity on the U.S. labor market and Federal Reserve policies, with potential rate cuts possibly prompting a shift towards small and mid-cap MedTech stocks.

However, the volatility and investor hesitancy due to second-quarter surprises may restrain stock price movements this quarter.

This earnings season will showcase the divergence between large-cap and small/mid-cap MedTech firms, as large-cap multiples slightly rebound while small/mid-cap valuations continue to decline. Such a divergence is likely to persist unless a tangible change in market sentiment or rates occurs, or if consolidation increases within the sector.