Needham & Co. senior research analyst Mike Matson today downgraded his rating of Medtronic (NYSE: MDT) and Zimmer Biomet (NYSE: ZBH) shares to Hold, while Boston Scientific (NYSE:BSX) got an upgrade to Buy.
MDT shares were down more than 1% to $97.98 apiece in morning trading, a day after Q4 earnings that missed The Street sent the medtech giant’s stock down more than 5%. ZBH shares were down slightly at $119.87 apiece, while BSX shares were up more than 2% at $41.15 apiece. MassDevice‘s MedTech 100 Index, which includes stocks of the world’s largest medical device companies, was up more than 1%.
When it came to Medtronic, Matson said: “The more things change, the more they stay the same.”
“MDT seems to have returned to its old pattern of poor execution and inconsistent results, and this is its third strike in our view, with the first being pipeline challenges (RDN and robotics) and the second being the Diabetes warning letter,” Matson said.
Medtronic (NYSE:MDT) yesterday reported about $350 million less in sales than analysts were expecting for its fourth quarter, which ended April 29. Adjusted EPS of $1.52 were 4¢ behind The Street
CEO Geoff Martha said supply chain problems were mostly in Surgical Innovations and stemmed from three things: semiconductors, a particular resin used in SI, and a “catastrophic explosion” in the company’s trade packaging supply chain. (Martha did not elaborate on the explosion, so it’s not clear whether he was referring to an actual explosion.)
Other analysts stayed with their present ratings of MDT shares but still offered critiques:
- Truist analysts kept their rating at Hold. They said it will likely be more than 12 months before surgical robotics, renal denervation or the company’s diabetes tech pipeline meaningfully contribute to growth, and there is still risk around regulatory approvals. They also wanted more confidence that diabetes business risk is in the rearview mirror.
- BTIG analyst Ryan Zimmerman kept his Neutral rating. He said the company needed more portfolio rationalization. “Overall, these supply chain challenges feel frustratingly similar to other disruptions investors have seen through the years; be it the pipeline, warning letters, or other issues.”
Meanwhile, Zimmer Biomet has announced a great deal of news over the past year. It spun off its dental and spine business as ZimVie (Nasdaq:ZIMV) in March. ZB has also introduced new ortho surgical offerings based on AI and mixed reality. They were also the first to offer smart knee implants.
Matson at Needham and company, however, downgraded ZBH shares because he thought inflationary pressure on Zimmer Biomet’s gross margin will carry into 2023, resulting in slow EPS growth until at least 2024. “In addition, ZBH has been losing share in its hip and knee business, and we’re not sure what will reverse this trend.”