1、North America Equity Research06 September 2019 Medical Supplies&DevicesBack to School;1H19 Recap,2H19 and 2020 OutlookMedical Supplies&DevicesRobbie Marcus,CFA AC(1-212)622-Allen Gong(1-212)622-Christian Moore(1-212)622-J.P.Morgan Securities LLCSee page 19 for analyst certification and important dis
2、closures.J.P.Morgan does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in makin
3、g their investment As we move past 2Q19 earnings and into the final months of the year,we thought it would be worthwhile to take a step back and take a look at(1)how the MedTech sector has performed YTD,(2)our thoughts on valuation andfundamentals as we move toward 3Q19 earnings and 2020 guidance,an
4、d(3)a broad overview of our positioning with respect to our coverage universe.Heading into 2H19,our top picks are Baxter and iRhythm,plus what wed own into 2H19 are BSX,MDT,SYK,ZBH,DXCM,IART,NVRO,NUVA,PODD,and SILK.All references to stock prices and valuation are based on the 9/4/19 close.MedTech st
5、ocks have(again)posted solid results so far in 2019 with an average gain of 19.3%year to date.Large-cap names have outperformed the S&P 500 by 2%and the Healthcare index by roughly 15%,an inverse of 2018 where MedTech outperformed by 19%and 8%,respectively.This picture largely holds when looking at
6、performance by end market,with Cardio Devices and Orthopedics outperforming by 10%and 13%,respectively,vs.37%and 4%in 2018.The only outlier here is Suppliers as legal concerns for J&J brought performance down for the whole group(-2%).Excluding JNJ,Suppliers are also outperforming the S&P,albeit at a
7、 lower 4%.SMid cap MedTech has been more volatile,with our coverage of small-cap names up 15%excluding ELGX and recent IPOs,with outperformance of 5%over the Russel 2000.Within Large Cap,multiple expansion has been the biggest driver of share price gains.Currently,large-cap MedTech stocks are tradin
8、g at 20.9x NTM cash EPS,16.5x NTM EBITDA,and a FCF yield of 4.5%,about two turns above the 18.3x,14.4x,and 5.4%we saw entering 2019.While weve seensome choppiness in the market related to macro concerns around globaluncertainty,trade tariffs,and interest rates in May and August,MedTech continues to
9、be the preferred place to hide in Healthcare as it doesnt have direct exposure to drug price reform.As a result,the group trades at a 25.6%premium to the S&P 500,a modest step down from the 27.8%we saw in January.SMid-Cap multiples have remained relatively stable,excluding the many successful IPOs w
10、eve seen this year.Currently,SMid-cap names are trading at roughly 6.0 x trailing EV/sales,although there remains a notable spread between high-multiple and low-multiple names(12.3x at the high end vs.2.9x at the low end).We believe fundamentals at these high-multiple names remain strong,however,and
11、 we continue to see these elevated valuations as sustainable given a healthy setup for beat-and-raise quarters plus a strong market multiple.Sector fundamentals continue to look strong with healthy,stable end markets and record levels of innovation supporting the pipeline.While comps for the large-c
12、ap universe gets harder in the back half,we nonetheless expect to see an acceleration from the 4.8%growth seen in 1H19 to 5.8%in the back half as our names lap company-specific headwinds and benefit from new product ramps.On the other hand,we expect both Mid Caps and SmallCaps will moderate,with gro
13、wth of 8.0-9.0%ex-DXCM(from 12.0%)and high-growth IPOs 6.0-6.5%(from 9-10%),respectively.With FX headwinds moderating as well in the back half of the year,we continue to expect EPS growth in the high single digits for the full year.2North America Equity Research06 September 2019Robbie Marcus,CFA(1-2
14、12)622- What Has Worked Year to Date in 2019Stocks that have worked so far this year have largely been driven by beats and guidance raises in 4Q18-2Q19,plus multiple expansion.The top performers this year have been EW(+43.5%),SYK(+39.7%),BAX(+32.9%),and ZBH(+33.1%).While Large-Cap MedTech was able t
15、o recover on a broad basis following a notable sell-off at the tail end of 2018,these names have been able to meet or exceed the expectations set on the back of 4Q18 calls.Importantly,all four of these names were able to post solid 2Q19 quarterly results vs.Street expectations,with all four names up
16、 the day after the print.The relative underperformers in our Large-Cap coverage universe are those that have posted uneven earnings results between 4Q18-2Q19 and/or have been impacted by company-or market-specific issues.Theres notable overlap between the two categories,however,with(1)BDX(+13.0%)pos
17、ting mixed performances in F1Q and F2Q as it continues to digest Bard,coupled with notable headwinds from paclitaxel leading to lowered EPS guidance in 1Q;(2)MDT(+18.4%),which started the year off with softer commentary on FY20 and has continued to face a number of headwinds across its businesses(LV
18、AD,Diabetes,DCBs,SCS)ahead of a back-end loaded year;(3)ABT(+16.4%),which had delivered strong absolute YTD results,but faces high Street expectations;and(4)BSX(+19.0%),which posted a series of mixed quarters and also lowered BTG expectations ahead of a strong 2H19.Table 1:Large-Cap MedTech YTD Earn
19、ings Performance2019 PerformanceEarnings Performance(Org Rev/EPS)Guidance(Org Rev/EPS)AbsoluteRelative4Q181Q192Q194Q181Q192Q19Abbott Labs16.4%(0.8%)In-line/In-lineIn-line/BeatBeat/BeatIn-line/In-lineUnch/UnchRaise/RaiseBaxter32.9%15.7%Beat/BeatIn-line/BeatBeat/BeatIn-line/In-lineUnch/RaiseNarrow/Rai
20、seBecton Dickinson13.0%(4.1%)In-line/BeatMiss/In-lineIn-line/BeatUnch/UnchUnch/LowerUnch/UnchBoston Scientific19.0%1.8%In-line/BeatMiss/MissIn-line/BeatIn-line/In-lineNarrow/NarrowUnch/UnchEdwards Lifesciences43.5%26.3%In-line/In-lineIn-line/BeatBeat/BeatUnch/UnchUnch/RaiseNarrow/RaiseJohnson&Johnso
21、n(0.1%)(17.3%)Beat/BeatBeat/BeatBeat/BeatIn-line/In-lineRaise/NarrowRaise/UnchMedtronic18.4%1.2%In-line/BeatIn-line/BeatBeat/BeatNarrow/RaiseIn-line/In-lineUnch/RaiseStryker39.7%22.5%Beat/BeatIn-line/BeatBeat/BeatIn-line/In-lineNarrow/NarrowRaise/RaiseZimmer33.1%15.9%Beat/In-lineIn-line/BeatBeat/Bea
22、tIn-line/In-lineUnch/UnchRaise/RaiseSource:Company reports and J.P.Morgan estimates.Moving down the cap curve,investors rewarded two types of SMid-Cap names:those that have continued to sustain beat-and-raise stories and those that have meaningfully outperformed low expectations and increased confid
23、ence in their near-term outlooks.The two diabetes names in our coverage universe represent the first group,with both DXCM(+41.6%)and PODD(+98.1%)having outperformed high expectations on the back of the G6 and DASH new product launches.With diabetes continuing to represent one of the most promising a
24、nd exciting areas within MedTech today,its no surprise that both have outperformed given their strong fundamental outlooks and the attractiveness of the diabetes end market.On the other hand,names such as NVRO(+115.4%),IART(+29.7%),and NUVA(+25.3%)have also managed to outperform the broader SMid-Cap
25、 universe despite structurally lower growth profiles.These stock moves were 3North America Equity Research06 September 2019Robbie Marcus,CFA(1-212)622- driven by a reversal of low investor expectations heading into the year as better than expected 1Q and/or 2Q results coupled with better than expect
26、ed guidance gave investors increased confidence in the ability of these companies to hit or exceed growth targets.The names that have underperformed so far this year are a mix of(1)previously high-growth stories that have stumbled and/or lowered their growth outlooks,which includes names such as XEN
27、T(-39.0%),INGN(-65.8%),and WMGI(-26.2%);(2)stories overshadowed by company-specific overhangs despite solid fundamentals,such as IRTC(+7.3%)due to concerns over a reimbursement cut,PEN(+14.8%)due to competition,ATRC(-14.0%)as the CONVERGE data wont be public until 2020 and there remain concerns arou
28、nd Low Risk TAVR shrinking the TAM despite strong fundamentals,and GKOS(+12.8%)due to the acquisition of Avedro,a little known IPO from earlier this year that we think is a perfect strategic fit for GKOS.Table 2:SMid Cap YTD Earnings Performance2019 PerformanceEarnings Performance(Org Rev/EPS)Guidan
29、ce(Org Rev/EPS)AbsoluteRelative4Q181Q192Q194Q181Q192Q19Atricure(14.0%)(24.1%)Beat/MissBeat/BeatBeat/BeatIn-line/BelowNarrow/UnchNarrow/LowerAvedro63.9%53.8%Beat/MissBeat/BeatBeat/BeatNARaise/NARaise/NAConformis481.0%470.9%Beat/BeatBeat/In-lineBeat/BeatLower/NAUnch/NALower/NACooper Companies18.4%8.3%
30、In-line/BeatIn-line/BeatNarrow/RaiseNarrow/RaiseDexcom41.6%31.5%Beat/BeatBeat/BeatBeat/BeatIn-line/NARaise/NARaise/NAEndologix602.5%592.4%Beat/MissBeat/BeatBeat/BeatIn-line/NAUnch/NAUnch/UnchGlaukos12.8%2.7%Beat/BeatBeat/BeatBeat/MissIn-line/NARaise/NARaise/NAInogen(65.8%)(75.9%)Beat/BeatMiss/MissMi
31、ss/MissUnch/LowerLower/LowerLower/LowerInsulet98.1%88.0%Beat/BeatBeat/BeatBeat/MissBelow/NARaise/NARaise/NAIntegra Lifesciences29.7%19.6%In-line/BeatIn-line/BeatBeat/BeatIn-line/In-lineUnch/UnchUnch/RaiseIntersect ENT(39.0%)(49.1%)Beat/In-lineBeat/MissMiss/MissBelow/NALower/NALower/LoweriRhythm7.3%(
32、2.8%)Beat/MissBeat/BeatBeat/MissAbove/NARaise/NARaise/NANevro115.4%105.3%Beat/MissMiss/MissBeat/BeatBelow/NANA/NAAbove/NANuvasive25.3%15.2%Miss/BeatBeat/BeatBeat/BeatBelow/BelowUnch/UnchUnch/RaisePenumbra14.8%4.7%Beat/BeatBeat/BeatBeat/BeatIn-line/NAUnch/NARaise/NASilk Road103.8%93.7%NABeat/NABeat/M
33、issNANA/NARaise/NATransMedics49.8%39.7%NABeat/BeatBeat/MissNAIn-line/NAUnch/NAWright Medical(26.2%)(36.3%)Beat/BeatBeat/BeatMiss/BeatIn-line/NAUnch/UnchLower/LowerSource:Company reports and J.P.Morgan estimates.3Q,2019,and 2020 Expectations vs.ConsensusAs we head into the end of 2019 and into 2020,i
34、ts worth highlighting how our forecasts compare to Street consensus across our coverage.Starting with 2019,we see the most upside to top-line estimates from ABT,BDX,MDT,and SYK,while bottom-line upside will likely come from BDX,MDT,and SYK.Looking at 3Q19,we see the most upside to top-line estimates
35、 for BDX and SYK and upside to bottom-line expectations for ABT,BAX,EW,and SYK.As we look out to 2020,we see the most top-line upside stemming from BDX,BSX,MDT,and SYK,with bottom-line upside coming from BAX,BDX,BSX,MDT,and SYK.4North America Equity Research06 September 2019Robbie Marcus,CFA(1-212)6
36、22- Table 3:JPM vs.Consensus-2019E2019ERevenuesEPSJPMorganStreetDiff.%JPMorganStreetDiff.%Large-Cap MedTechAbbott LabsABT$31,968$31,939$29 0.1%$3.25$3.25$0.00 0.2%BaxterBAX$11,271$11,294($23)(0.2%)$3.35$3.38($0.03)(1.0%)Becton DickinsonBDX$17,519$17,462$56 0.3%$12.01$11.91$0.10 0.8%Boston Scientific
37、BSX$10,835$10,624$211 2.0%$1.58$1.56$0.02 1.1%Edwards LifesciencesEW$4,194$4,235($41)(1.0%)$5.33$5.35($0.01)(0.3%)Intuitive SurgicalISRG$4,299$4,339($40)(0.9%)$11.79$12.10($0.31)(2.6%)Johnson&JohnsonJNJ$81,645$81,519$126 0.2%$8.61$8.60$0.01 0.1%MedtronicMDT$31,074$31,033$42 0.1%$5.89$5.42$0.47 8.8%S
38、trykerSYK$14,893$14,863$30 0.2%$8.22$8.21$0.01 0.1%ZimmerZMH$7,956$7,955$1 0.0%$7.80$7.82($0.02)(0.3%)Source:J.P.Morgan estimates,Bloomberg.Table 4:JPM vs.Consensus-2Q19E3Q19ERevenuesEPSJPMorganStreetDiff.%JPMorganStreetDiff.%Large-Cap MedTechAbbott LabsABT$8,120$8,108$12 0.2%$0.85$0.84$0.01 1.0%Bax
39、terBAX$2,856$2,862($6)(0.2%)$0.84$0.84$0.00 0.4%Becton DickinsonBDX$4,597$4,561$36 0.8%$3.30$3.31($0.01)(0.2%)Boston ScientificBSX$2,716$2,611$105 4.0%$0.38$0.38($0.00)(0.3%)Edwards LifesciencesEW$1,026$1,038($12)(1.1%)$1.23$1.22$0.01 0.9%Intuitive SurgicalISRG$1,050$1,065($15)(1.4%)$2.83$2.99($0.16
40、)(5.4%)Johnson&JohnsonJNJ$20,192$20,098$94 0.5%$2.04$2.00$0.04 1.8%MedtronicMDT$7,694$7,665$29 0.4%$1.28$1.27$0.01 0.8%StrykerSYK$3,601$3,579$22 0.6%$1.91$1.90$0.01 0.4%ZimmerZMH$1,873$1,874($1)(0.0%)$1.75$1.75($0.00)(0.2%)Source:J.P.Morgan estimates,Bloomberg.Looking at the SMID cap space,the names
41、 where we see upside to top-line expectations are DXCM,GKOS,IART,IRTC,NUVA,PEN,and PODD.5North America Equity Research06 September 2019Robbie Marcus,CFA(1-212)622- Table 5:Small-Cap JPM vs.Consensus-2019E2019ERevenuesEPSJPMorganStreetDiff.%JPMorganStreetDiff.%Small-to Mid-Cap MedTechAvedroAVDR$41$40
42、$1 2.4%($2.15)($2.17)$0.02(0.7%)AtricureATRC$228$227$1 0.3%($1.07)($0.85)($0.22)25.9%ConforMISCFMS$79$79($0)(0.1%)($0.39)($0.43)$0.04(8.5%)CooperCOO$2,675$2,672$2 0.1%$12.46$12.39$0.07 0.6%DexcomDXCM$1,374$1,367$7 0.5%$1.10$0.88$0.22 25.1%EndologixELGX$144$143$1 1.0%($2.36)($2.87)$0.51(17.8%)Glaukos
43、GKOS$242$233$9 3.9%($0.88)($0.49)($0.39)79.6%InogenINGN$372$380($8)(2.1%)$1.07$1.15($0.08)(7.2%)InsuletPODD$715$712$4 0.5%$0.31$0.28$0.03 11.1%Integra LifesciencesIART$1,522$1,522$0 0.0%$2.75$2.73$0.02 0.7%Intersect ENTXENT$109$109($0)(0.2%)($1.42)($1.43)$0.01(0.9%)iRhythmIRTC$215$216($1)(0.3%)($1.5
44、2)($1.58)$0.06(3.9%)NevroNVRO$372$373($1)(0.2%)($4.02)($3.83)($0.19)4.9%NuVasiveNUVA$1,159$1,155$4 0.3%$2.33$2.32$0.01 0.5%PenumbraPEN$539$540($1)(0.1%)$0.77$0.87($0.10)(11.4%)Silk Road MedicalSILK$62$62$0 0.6%($2.21)($1.76)($0.45)25.4%TransMedicsTMDX$25$25($0)(0.9%)($1.88)($1.83)($0.05)2.7%Wright M
45、edicalWMGI$929$928$1 0.2%($0.02)$0.12($0.14)Source:J.P.Morgan estimates,Bloomberg.Table 6:Small-Cap JPM vs.Consensus-3Q19E3Q19ERevenuesEPSJPMorganStreetDiff.%JPMorganStreetDiff.%Small-to Mid-Cap MedTechAvedroAVDR$10$10$0 1.5%($0.51)($0.50)($0.01)2.6%AtricureATRC$55$55($0)(0.6%)($0.29)($0.24)($0.05)1
46、9.3%ConforMISCFMS$18$18$0 1.1%($0.09)($0.11)$0.02(15.1%)CooperCOO$654$655($1)(0.1%)$2.77$2.76$0.01 0.2%DexcomDXCM$349$349$0 0.0%$0.24$0.22$0.02 9.1%EndologixELGX$36$35$1 1.8%($0.57)($0.68)$0.11(16.3%)GlaukosGKOS$58$57$1 2.0%($0.13)($0.15)$0.02(12.2%)InogenINGN$93$92$1 1.5%$0.26$0.23$0.03 12.6%Insule
47、tPODD$179$179($0)(0.2%)$0.03$0.05($0.02)(44.4%)Integra LifesciencesIART$377$376$1 0.2%$0.66$0.65$0.01 1.5%Intersect ENTXENT$23$24($1)(3.6%)($0.46)($0.39)($0.07)17.6%iRhythmIRTC$54$54$0 0.0%($0.39)($0.40)$0.01(3.0%)NevroNVRO$92$92$0 0.1%($0.91)($0.81)($0.10)12.6%NuVasiveNUVA$289$284$5 1.8%$0.54$0.53$
48、0.01 1.1%PenumbraPEN$133$134($1)(0.9%)$0.14$0.17($0.03)(15.7%)Silk Road MedicalSILK$16$16$0 0.6%($0.24)($0.27)$0.03(9.4%)TransMedicsTMDX$7$7$0 3.4%($0.42)($0.40)($0.02)5.0%Wright MedicalWMGI$209$208$1 0.4%($0.11)($0.07)($0.05)69.2%Source:J.P.Morgan estimates,Bloomberg.6North America Equity Research0
49、6 September 2019Robbie Marcus,CFA(1-212)622- MedTech Valuations:Spreads Remain Wide Between the Haves and Have-NotsLooking at valuation,large-cap MedTech stocks are trading at 20.9x NTM cash EPS,16.5x NTM EBITDA,and a FCF yield of 4.5%.This represents a notable step up from the 18.3x,14.4x,and 5.4%w
50、e saw entering the year on 2019E numbers,with a modest decline in premium to the S&P of 25.7%versus 27.8%.When looking at the spread between the high-and low-multiple names,those above the large-cap average are trading at 24.4x,a notable step up from the 21.2x seen at the start of 2019,while compani