As soon as Johnson & Johnson (NYSE:JNJ) exceeded expectations with its Q2 2023 results last week, Baird produced a report pointing to brighter days for MedTech, especially due to the accelerating volume of medical procedures and the reduced impact of COVID in China.
With their MedTech division posting double-digit percentage growth, JNJ (JNJ) and rival medical device maker Abbott Laboratories (ABT) posted better-than-expected Q2 results on Thursday, rallying the subsector.
iShares US Medical Devices ETF (IHI) posted its second straight weekly gain, up ~1.6% versus ~0.7% in the S&P 500.
“From a high level, we believe JNJ’s above-expected Q2 performance is a positive read for our many covered medtech stocks heading into the Q2 reporting season,” wrote Baird analysts led by Jeff Johnson and David Rescott.
Despite the company being more lenient, it saw sequential acceleration of JNJ’s MedTech Q2 earnings and highlighted its strong performance worldwide and the easing of COVID-induced social restrictions in China.
In May, Chinese respiratory disease specialist Zhong Nanshan warned that the country would see as many as 65 million weekly COVID cases by the end of June.
“Notably, COVID-related restrictions in China (which weighed on 1Q23) eased, which we believe should be viewed positively given the intra-quarter concerns ahead of this,” the analysts wrote.
Despite the potential impact of volume-based procurement, analysts argue that MedTech’s better performance is a key reason for the company to improve its full-year growth prospects, given the normalization of procedure volume and staffing levels.
Baird in particular noted the positive reads into the eye care market, indicating a favorable impact on contact lens makers The Cooper Companies (COO) and Alcon (ALC).
Citing additional traction in the orthopedics and cardio segments, the company lists Medtronic (MDT), Boston Scientific (BSX), Edwards Lifesciences (EW), and Enovis (ENOV) as potential beneficiaries of the results.
Despite being rated Neutral at Medtronic (MDT), Baird’s views at MedTech are mostly positive, with ratings Outperforming Boston Scientific (BSX), Edwards Lifesciences (EW), Enovis (ENOV), Zimmer Biomet (ZBH), Stryker (SYK), The Cooper Companies (COO), and Alcon (ALC).