Expect Conservative Guidance For Medical Tech Stocks?

On Thursday, BMO Capital Markets issued a report on the Medical Technology industry ahead of the fourth quarter earnings season. Analysts highlighted multiple companies including Abbott Laboratories (NYSE: ABT), Wright Medical Group Inc. (NASDAQ: WMGI), and Stryker Corporation (NYSE: SYK). Joanne Wuensch and Andrew Hanover, analysts at BMO Capital Markets, gave their opinion on the three above companies saying that investors should expect conservative guidance for fourth quarter earnings.

Wright Medical: Outperform while a price target is unavailable

"For Wright Medical, this is the first full quarter after the close of the Tornier acquisition, and we expect an update on the integration, as well as initial Augment sales...now that the merger has been completed, the next long-term step will be achieving profitability…"

While BMO believes that there may be challenges to the integration of Tornier, synergies are expected to be between $25 and $30 million in the first 12-18 months which provides a strong value to Wright Medical along with a platform that can be used to drive top line growth.

Abbott Laboratories: Outperform while a price target is unavailable

"Shares of ABT have struggled amidst concerns regarding emerging markets exposure (50%), including China (8%)...we anticipate many questions will be regarding potential M&A, as management does seem closer to pulling the trigger than it has been in the past….we model gross margins of 57.4% versus 56.9% y/y, and operating margins of 22.4% versus 21.0% y/y."

While analysts expect 2016 guidance to be conservative, BMO believes that Abbott can benefit from margin expansion as Abbott has solidified itself as a key player in the medical technology industry and has strong customer relationships.

Stryker: Underperform while a price target is unavailable

"On January 12, 2016, Stryker management pre-announced preliminary 4Q15 revenue of $2.7B (up 6.4% organic, slightly below the consensus estimate of $2.71B), and 2015 EPS of $5.09-$5.12 (versus consensus estimate of $5.11)... management still has ~$1.9B available in their buyback program, but has stated that M&A will be its first priority…"

For their 2016 guidance Stryker emphasized that foreign exchange will drain $0.10 to $0.15 in 2016 earnings, however with strong order volume Stryker may continue to drive top line growth and margin expansion.