In a rapidly advancing healthcare landscape, medical technology companies are at the forefront of innovation, delivering solutions that not only enhance patient care but also drive significant market growth. Morgan Stanley recently upgraded several companies within the medtech group, continuing to view the subsector as attractive heading into 2025.
“Despite a volatile year in 2024, we remain bullish on the overall MedTech environment, with volumes in good shape, a stocked innovation pipeline, and comparatively lower risk from extended regulatory pathways,” Morgan Stanley said in a note. The investment bank noted that its recent hospital survey suggests capital spending is expected to grow by 3.5% in 2025, with a significant increase in CT scanners and patient monitoring. Also, 64% of respondents indicated they expect elective procedure utilization to increase compared to 2024.
Three standout names - Stryker (SYK), Globus Medical (GMED), and Intuitive Surgical (ISRG) - from this space could be prime candidates for investors seeking strong returns in 2025 and beyond. With that, let’s have a closer look at these stocks.
1. Stryker Corporation
Stryker Corporation (SYK) is a leading global medical device company with a vast international presence and extensive patient reach. Since its reorganization in 2021, Stryker has operated two business segments: MedSurg and Neurotechnology, and Orthopaedics and Spine. The MedSurg and Neurotechnology segment offers surgical equipment, safety technologies, instruments, and other products. The Orthopaedics and Spine segment primarily offers implants for total joint replacements and supplies specialized instrumentation for orthopedic surgery. It has a market capitalization of $146.8 billion.
Stryker’s stock has gained 28.6% on a year-to-date basis.
Morgan Stanley’s View on SYK Stock
On Dec. 2, Morgan Stanley raised Stryker’s rating to “Overweight” from “Equal Weight,” and increased the price target to $445 from $370. Morgan Stanley forecasts that an industry backlog ranging from $1 billion to $2 billion will underpin growth in 2025. The firm also highlighted the potential for mergers and acquisitions and referred to a “solid product cycle.”
How Did SYK Perform in Q3?
On Oct. 29, Stryker released Q3 financial results that beat on both lines. Its consolidated net sales grew 11.9% year-over-year to $5.5 billion, topping Wall Street’s expectations by $130 million. SYK also delivered solid organic sales growth of 11.5%. The company’s performance featured robust double-digit growth in MedSurg and Neurotechnology and nearly 10% growth in Orthopedics and Spine, reflecting healthy demand across its varied product portfolio and consistent commercial execution. This was propelled by double-digit organic growth in its medical, neuro cranial endoscopy, trauma and extremities, and hips and knees businesses.
During the most recent conference call, management emphasized their ongoing expectation of strong procedural demand through year-end. Demand for the company’s capital products was strong in the third quarter, with a heightened backlog across its capital businesses. Interest in the Mako robot was underscored by record Q3 installations both globally and in the U.S., accompanied by high utilization rates worldwide. Stryker anticipates that the ongoing momentum from installations and utilization will continue to propel growth in its hips and knees businesses.
It is also important to note that SYK’s adjusted EPS growth outpaced net sales growth, 16.7% compared to 11.9%, indicating that earnings grew 4.8% faster than net sales. This means the company is operating efficiently and recovering from a dip in normalized adjusted EPS in 2022 and 2023. With that, its Q3 adjusted EPS came in at $2.87, beating expectations by $0.10. Notably, the adjusted operating income margin expanded by 130 basis points year-over-year to 24.7%.
Meanwhile, Stryker has traditionally enhanced its core assets through acquisitions, and the third quarter was no exception. The company completed several acquisitions, including Care.ai, NICO Corporation, and Vertos Medical.
Looking ahead to fiscal 2024, management has revised their expectations to the upper end of their previously provided guidance ranges, now anticipating full-year organic net sales growth of 9.5% to 10% and adjusted EPS of $12 to $12.10.
SYK Valuation, Dividend, and Analysts’ Estimates
Analysts tracking the company expect a 13.77% year-over-year increase in its EPS to $12.06 for fiscal 2024. Also, Wall Street anticipates SYK’s revenue to grow 9.86% year-over-year to $22.52 billion.
Notably, Stryker pays a modest yet steadily growing dividend. SYK offers a forward yield of 0.83% and has consistently increased its dividend for 14 consecutive years. With a payout ratio of just 27.49%, there is ample room for growth and an increase in total returns.
In terms of valuation, SYK stock is trading at 31.94 times forward adjusted earnings, above the sector median of 20.70x and its five-year average of 27.58x. However, it’s important to note that this is a growth stock, not a value stock. The company is advancing on multiple fronts, including organic growth, margin expansion, and acquisitions. With that, the stock is worth owning given the potential for significant growth in both earnings and share price in the near future.
What Do Analysts Expect For SYK Stock?
Analysts have a consensus rating of “Strong Buy” on Stryker stock, with an average target price of $404.46, which indicates an upside potential of 5% from Friday’s closing price. Out of the 28 analysts covering the stock, 19 analysts recommend a “Strong Buy,” two advise a “Moderate Buy” rating, and the remaining seven give a “Hold” rating.
2. Globus Medical
Globus Medical (GMED) primarily specializes in offering a diverse range of devices for spinal surgeries. The company also provides products for knee and hip procedures, along with robotic and imaging systems. Its market cap currently stands at $11.34 billion.
Shares of the medical device company have climbed 56.4% year-to-date.
Morgan Stanley’s View on GMED Stock
On Dec. 2, Morgan Stanley upgraded the stock to “Overweight” from “Equal Weight” with a price target of $100, up from $83. The firm anticipates that Globus’ AR headset will receive FDA clearance in Q4, highlighting management’s intention to advance navigation with the headset, which is designed to integrate with ExcelsiusHub.
“Merger concerns were well behind us” and “above market growth” was expected to continue, Morgan Stanley said in a note.
Recent News for GMED Stock
On Nov. 22, Globus Medical announced the commercial launch of the ExcelsiusHub navigation system. This system offers freehand navigation, providing surgeons with real-time visualization of instrument placement to reduce dependency on X-ray imaging during spine surgery. It also enables precise placement of screws and interbody spacer implants and may reduce operating room radiation compared to traditional fluoroscopy.
“This launch extends the capabilities and reach of our Excelsius ecosystem,” said Dan Scavilla, president and CEO of Globus Medical. “We now have a technology platform that fits a very wide variety of surgeons’ and hospitals’ needs, with design and footprint suited for both the hospital and ASC setting. We look forward to continuing to support our customers with technology that is designed for less invasive procedures with potentially lower radiation exposure.”
GMED Jumps on Upbeat Q3 Results and Guidance Raise
On Nov. 6, GMED climbed more than 9% after reporting stronger-than-expected Q3 results and boosting its full-year guidance. Its total net sales increased by 63.1% year-over-year to $625.7 million, primarily due to the acquisition of Nuvasive, which the company completed a year ago. The top line surpassed the consensus by $20.92 million. Musculoskeletal revenue for the third quarter reached $587.4 million, marking a year-over-year increase of over 65%. U.S. sales came in at $495.8 million, a 60.3% increase from the same period last year. International sales saw even greater growth, rising 74.8% to $129.9 million, driven mainly by the contributions from the NuVasive merger. Its adjusted EPS hit a record $0.83, up 45% year-over-year, despite a 20% increase in diluted shares compared to the previous year. The bottom line also topped expectations by $0.18.
Adjusted EBITDA grew 71.6% year-over-year to $193.7 million. Adjusted EBITDA margin expanded by 160 basis points to 31%. GMED also generated a record free cash flow of $162 million during the quarter, which is equivalent to its 2023 full-year free cash flow. Overall, the company’s financial results demonstrate its ongoing efforts in market penetration, synergy acceleration, and continued profitable growth through financial discipline.
It’s also important to highlight that Globus introduced four new products across its businesses in Q3, bringing the total to 13 product launches year-to-date. Notably, the company sold and shipped its first EHUB units during the quarter. Management noted that the ExcelsiusHub launch in Q3 was progressing well as the company entered the freehand navigation market, thus opening the largest market segment for Globus’ innovation and growth. The integration of the E3D imaging system with the EHUB navigation platform provides Globus with the most advanced and comprehensive navigation solution on the market. The company intends to further enhance navigation capabilities with its XR augmented reality headset, which is designed to integrate with the ExcelsiusHub.
Based on the Q3 performance and the outlook for the rest of the year, management raised 2024 revenue guidance to between $2.49 billion and $2.50 billion, up from the previous range of $2.47 billion to $2.49 billion. Also, the full-year forecast for adjusted EPS was boosted to $2.90-$3.00 from $2.80-$2.90.
Wall Street reacted positively to the company’s Q3 performance and FY24 guidance, with several brokerages - including Wells Fargo, BofA, BTIG, and Piper Sandler, among others - raising their price targets on the stock.
GMED Valuation and Analysts’ Estimates
According to Wall Street estimates, GMED is expected to post a 28.02% year-over-year EPS growth to $2.97 in fiscal 2024, while revenue is anticipated to grow 59.19% year-over-year to $2.5 billion.
In terms of valuation, the stock’s forward P/E Non-GAAP multiple stands at 28.00x, which is about 35% higher than the sector median of 20.67x, though slightly below its five-year average of 32.20x. Given GMED’s strong potential to boost its earnings power in the coming years, its valuation appears reasonable at current levels.
What Do Analysts Expect For GMED Stock?
Analysts have deemed GMED stock a “Moderate Buy,” with a mean price target of $91.85, indicating an upside potential of 10.2% from Friday’s closing price. Among the 15 analysts covering the stock, nine rate it as a “Strong Buy,” one as a “Moderate Buy,” four give a “Hold” rating, and one considers it a “Moderate Sell.”
3. Intuitive Surgical
Intuitive Surgical (ISRG) is a global leader in minimally invasive care, specializing in robotic-assisted surgery. Its flagship product, the da Vinci Surgical System, has transformed surgical procedures by enabling more precise and minimally invasive operations. The company’s market cap currently stands at $196 billion.
Shares of the maker of da Vinci surgical systems have rallied 63.2% on a year-to-date basis.
Morgan Stanley’s View on ISRG Stock
On Dec. 2, Morgan Stanley upgraded ISRG stock to “Overweight” from “Equal Weight” and raised its price target to $650 from $522. Morgan stated that it anticipates Dv5 placements will beat the Street's expectations for the installed base and that an aging surgeon population will likely enhance the adoption of robotics.
The firm also noted that ISRG's research on system payback curves indicates potential new applications in areas such as glioblastoma resection, hybrid cardiac revascularization, and nipple-sparing mastectomy.
ISRG Climbs on Strong Q3 Results
On Oct. 18, Intuitive Surgical stock advanced 10% after reporting better-than-expected Q3 results. The company also boosted its full-year procedure growth forecast.
Intuitive Surgical posted third-quarter revenue of $2.04 billion, marking a 17% increase from the same quarter last year and beating Wall Street’s consensus by $30 million. The revenue growth was fueled by an increase in da Vinci procedure volume and a larger installed base of systems. Notably, the company placed 379 da Vinci surgical systems during the quarter, an increase from 312 in the third quarter of 2023. ISRG also expanded its da Vinci surgical system installed base to 9,539 systems, reflecting a 15% increase year-over-year. In addition, the total number of da Vinci procedures increased by 18% year-over-year, pointing to robust demand for advanced technology in the surgical industry. Its adjusted EPS grew 26% year-over-year to $1.84, beating expectations by $0.20.
Meanwhile, da Vinci 5, which is the company’s next-generation multiport robotic system, received FDA 510(k) clearance in March of this year. Da Vinci 5 is engineered to enhance accuracy and precision through its next-generation 3D display and imaging systems. During the earnings call, management noted that surgeon feedback on da Vinci 5 emphasized improvements in precision, imaging, and ergonomics. The company installed 110 da Vinci 5 systems in Q3, with more than 12,000 procedures completed in about six months.
It is also worth mentioning that in October, ISRG received regulatory clearance in South Korea for the da Vinci 5 surgical system, permitting its use in urologic, general, gynecologic, thoracoscopic, thoracoscopically-assisted cardiotomy, and transoral otolaryngology surgical procedures.
Precedence Research predicts that the global surgical robotics market will exceed $36 billion by 2032, expanding at a compound annual growth rate (CAGR) of 16.4% from 2023 to 2032. With that, the launch of da Vinci 5 is expected to significantly boost the company’s growth.
Looking ahead, the company raised the lower end of its 2024 procedure growth forecast to a range of 16% to 17%, up from a previous range of 15.5% to 17%.
ISRG Valuation and Analysts’ Estimates
For fiscal 2024, analysts tracking the company predict a solid 34.57% year-over-year rise in its EPS to $5.45, while ISRG’s top line is expected to grow 14.28% year-over-year to $8.14 billion.
In terms of valuation, priced at 80.42 times forward adjusted earnings, the stock trades at a premium compared to the sector median of 20.67x and its five-year average of 60.32x. This trend is also evident across its other key valuation multiples. While its technological superiority may somewhat justify its premium valuation, investors should also weigh the likelihood of significant downside volatility.
What Do Analysts Expect For ISRG Stock?
Analysts have a consensus rating of “Moderate Buy” on ISRG stock. Out of the 26 analysts in coverage, 17 recommend a “Strong Buy,” two advise a “Moderate Buy” rating, and seven recommend a “Hold.” Notably, the stock trades close to its mean price target of $556.75, but the Street-high target price of $650.00, set by Morgan Stanley, suggests an upside potential of 18.1%.
