Amid concerns about inflation and economic uncertainty in 2023, one healthcare sector is poised to reap dividends for investors: medical companies.
That’s the assessment of William Plovanik of Canaccord Genuity, who calls medtech “defensive a sector with improving fundamentals.”
He is particularly bullish on companies in the cardiovascular, neuromodulation, respiratory, ophthalmology, oncology and organ transplant sectors.
“We expect sustained demand despite a potentially looming recession,” Plovanich wrote in a recent note to investors. “We expect growth may accelerate in 2H/23 as [foreign exchange] headwinds are becoming annual and health care staffing problems are gradually diminishing.”
He added that given the aging U.S. population, as well as the acute conditions that treat many medtech companies’ products, the recession won’t have much of an impact and “medtech is a good place for investors to weather the coming storm.”
The long term is also promising for health tech companies, Plovanik says, due to the fact that by 2030, the entire Baby Boomer population will be 65 and older and make up 21 percent of the U.S. population.
Rather, the biggest challenge for medical companies in 2023 is the health care workforce shortage, although Plovanic expects it to decrease as the year progresses.
Plovanic has three stocks he is particularly bullish on: ShockWave Medical (NASDAQ: SWAV), TransMedics (NASDAQ: TMDX), and Nevro (NYSE: NVRO).
ShockWave (SWAV) markets intravascular lithotripsy technology for calcified plaque in patients with peripheral vascular, coronary vascular and valvular heart disease. Year to date shares are up to ~9%.
Plovanic has a price target of $247 (~18% upside based on Friday’s close). He noted that the introduction of new products will serve to increase average selling prices and drive the company’s overall growth. He cited the new M5+ device to treat peripheral artery calcium build-up and the upcoming launch of the L6 in the first half of 2023 and an improved coronary C2+ in the second half of the year.
TransMedics (TMDX) provides organ transplant therapy for end-stage organ failure patients. Year to date stocks are up to 192%.
Plovanic’s price target is $68 (14% upside). He noted that in 2022, TransMedics was unable to keep up with demand for its products. However, the company is focusing on hiring more staff and increasing cleanroom capacity.
The analyst spoke highly of the company’s National OCP Program, which facilitates the delivery of organs across the country. Plovanic noted that TransMedics ( TMDX ) has established 15 geographic areas to launch the program, is adding support staff and intends to add transportation capabilities with a flight logistics provider.
Alpha Seeking Associate Tyler Marriott recently named TransMedics (TMDX) his top pick for 2023.
Nevro (NVRO) is known for the Senza Spinal Cord Stimulation System (“SCS”) for chronic pain. Year to date stocks are down ~53%.
Plovanic has a price target of $67 (~67% upside). It sees revenue growth of 14% YoY through 2023.
Plovanic noted that Nevro’s (NVRO) recently launched HFX iQ system is the first SCS to have artificial intelligence capabilities, as it can adjust based on an individual’s perception of pain. He added that this advantage will help the company’s sales representatives to get new accounts.
Finally, the analyst said there are other companies in the space that he sees as buyers — such as Boston Scientific (NYSE: BSX), Penumbra ( PEN ), Inari Medical ( NARI ), and iRhythm Technologies ( IRTC ) — but ideally, investors should wait to buy until the stock pulls back or business momentum picks up.