BofA's Favorite MedTech Picks Right Now

BofA Merrill Lynch’s Bob Hopkins said that although Medtech has continued to outperform healthcare, concerns related to healthcare have adversely impacted Medtech’s performance. He cited two issues impacting healthcare:

1. Concerns surrounding the US election and the rhetoric around drug prices
2. During 2013 to 2015, value creation in healthcare had been driven by improving volumes [due to ACA and an improving economy] and a significant increase in M&A. There are concerns around these major drivers now being much less pronounced.

“Offsetting the less favorable macro backdrop are attractive valuations, but in our view, low valuations are not enough to drive stocks in this environment. There needs to be a catalyst,” Hopkins wrote.

Boston Scientific

Boston Scientific Corporation BSX – Rated Buy, with a Price Objective of $23.

Better-than-expected revenue growth is likely to drive the company’s stock higher in 2016. In order to meet consensus expectations, Boston Scientific would need to generated 5.5 percent organic revenue growth this year. Watchman alone could drove 50-75bp of upside, since “the market opportunity is large and the need is clear,” Hopkins said.

Boston Scientific has guided to $175-200m in structural heart revenue for 2016, including Watchman and Lotus. The analyst expects this figure to reach closer to $250m.

Intuitive Surgical

Intuitive Surgical, Inc. ISRG – Rated Buy, with a Price Objective of $640.

Hopkins said that the catalysts for the company’s shares are for ISRG are Medtronic’s analyst day scheduled for June 6 and the Sp launch, expected in late 2016.

Medtronic is unlikely to provide such details as would be required for the Street to have conviction that the company’s system is a near term threat to Intuitive Surgical. “We think MDT remains 18 to 24 months away from any launch and we think the message from the analyst day will be that MDT’s system is less of a direct threat to ISRG than investors think,” the BofA Merrill Lynch report stated.

Medtronic

Medtronic PLC MDT - Rated Buy, with a Price Objective of $90.

Capital allocation likely to be a catalyst for the company. The analyst expects nearly a 25 percent hike in the dividend in June and believes that Medtronic would execute share repurchases of $5-$7bln in early fiscal 2017, which begins in May 2016.

Zimmer Biomet

Zimmer Biomet Holdings Inc ZBH Rated Buy, with a Price Objective of $127

Hopkins expects the company’s revenue growth acceleration to approach 2 percent by 2Q16, which could drive 15-20 percent upside in the stock. Zimmer Biomet’s quarterly reports are likely to be the catalyst for the stock.