The ongoing resurgence of the pandemic could limit recovery in hospital procedure volumes and delay the rebound in MedTech procedures at least through early 2022, a team of analysts from Goldman Sachs argues.
- Issuing themes for portfolio set up in healthcare for 2022, the analysts led by Asad Haider warned last week that there could be at least one more COVID-19 wave with the rise of the Omicron variant of the virus.
- Despite the uncertainty over a timeline for the “normalization,” the team sees potential for the disease to reach endemic status in the intermediate term, benefitting certain commercial firms and those leveraged on hospitals and procedures.
- Focusing on the impact of such a scenario on utilization, the analysts turn their attention to MedTech, healthcare provision, and managed care.
- According to them, the resurgence of COVID-19 cases could hurt procedure volumes in H1 2022 and worsen the nursing shortages, which in turn could result in a slowdown in elective procedures and limit the recovery in surgery volumes before subsiding in H2 2022.
- “Expect relative underperformance to continue until at least the Spring, when a resetting of numbers and reduced hospital constraints could foster a recovery,” the analysts Amit Hazan and the team wrote. They predict that there could be more visibility by mid-2022 when “vaccines, natural immunity, antivirals and better overall management experience with Covid should increase the likelihood of recovery.”
- Contrasting its projections in early 2021, the bank avoids modeling “MedTech procedure volumes to rebound to above pre-Covid trend due to pent-up demand or backlog." The analysts expect the companies to indicate this in their initial forecasts for next year implying further room for downward revisions in Street forecasts which, according to them, could be the last COVID-induced revision to MedTech estimates.
- Goldman Sachs added Intuitive Surgical(NASDAQ:ISRG)to the firm’s conviction list, citing a potential launch of its multiport system in the first quarter. The maker of da Vinci Surgical System stands alongside Becton Dickinson(NYSE:BDX)and Zimmer Biomet(NYSE:ZBH)as a top large-cap pick in the space. However, the firm is less constructive on Stryker(NYSE:SYK), Medtronic(NYSE:MDT), Edwards Lifesciences(NYSE:EW), and Abbott(NYSE:ABT). See the graph below to compare how some of the above stocks have performed over the past year.
- According to Seeking Alpha Quant Ratings, none of the large-cap MedTech companies, including Abbott (ABT), Medtronic (MDT), Intuitive Surgical (ISRG), and Stryker (SYK), have Bullish prospects. The hospital operator HCA Healthcare(NYSE:HCA)is the only large-cap healthcare provider with a Bullish rating.
- Meanwhile, Goldman Sachs cites a favorable backdrop in managed care space. Despite the ongoing limits to procedure volumes amid labor constraints and shift to low-cost settings, the companies in the subsector are conservatively priced, implying the return of deferred care and COVID costs, the analysts argue.
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