The medical devices and equipment industry is well-positioned to maintain momentum amid a surge in chronic diseases, early diagnosis and treatment, and technological advancements. Given this backdrop, let us probe into medical equipment stocks STERIS plc (STE), Embecta Corp. (EMBC), and Avanos Medical, Inc. (AVNS) now.
The growing prevalence of chronic diseases, an aging population, and increased health consciousness among individuals have made healthcare agencies increasingly emphasize early diagnosis and treatment. This has led to an increasing number of patients undergoing diagnostic and surgical procedures.
The global medical devices market is projected to grow to $799.67 billion by 2030, exhibiting a CAGR of 5.9%. The growth could be further attributable to technological evolution and its application in the healthcare industry.
For instance, technological advancements in surgical robots and their increasing usage by healthcare providers could help the industry thrive. The global surgical robots market is expected to reach $16.51 billion in 2030, expanding at a CAGR of 17.2%.
Moreover, there has been an uptick in wearable medical devices for individualized treatment and constant remote patient monitoring by healthcare professionals. The global wearable healthcare devices market is poised to reach $30.1 billion by 2026, growing at a CAGR of 13.2%.
Given the industrial tailwinds, quality medical equipment stocks STE, EMBC, and AVNS could be wise portfolio additions now.
STERIS plc (STE)
Based in Ireland, Dublin, STE provides infection prevention products and services worldwide. It operates through four segments: Healthcare; Applied Sterilization Technologies; Life Sciences; and Dental.
On June 20, Becton, Dickinson and Company (BDX), a leading global medical technology company, announced that it had signed a definitive agreement to sell its Surgical Instrumentation platform to STE for $540 million.
STE would be well-positioned to maximize this extensive portfolio’s value and add BDX’s dedicated and talented team to its organization, which should bode well for STE.
On May 3, STE announced that its Board of Directors had authorized a new share buyback program for the purchase of up to $500 million of the company's ordinary shares.
In addition, the company is set to distribute a quarterly interim dividend of $0.47 per share, payable to shareholders on June 28. STE pays an annual dividend of $1.88, which translates to a dividend yield of 0.89% on current prices.
Its four-year average dividend yield is 0.87%. The company’s dividend payouts have grown at a CAGR of 19.2% over the past three years and 9.2% over the past five years.
STE’s trailing-12-month EBITDA margin of 26.95% is 663.4% higher than the 3.53% industry average. Its trailing-12-month ROCE, ROTC, and ROTA of 1.70%, 5.10%, and 0.99% compare to the industry averages of negative 42.62%, 23.10%, and 33.13%, respectively.
STE’s EBITDA and EBIT have grown at CAGRs of 21.6% and 12.8% over the past three years, respectively. Moreover, its revenue grew at 17.8% and 13.6% CAGRs over the past three years, respectively.
For the fiscal fourth quarter that ended March 31, 2023, STE’s revenues grew 14.4% year-over-year to $1.38 billion, while gross profit for the quarter stood at $588.06 million, up 2.9% year-over-year.
For the same quarter, the company’s adjusted net income attributable to the shareholders and adjusted EPS came in at $229.24 million and $2.30, up 11.6% and 12.7% from the year-ago quarter, respectively.
Moreover, for the fiscal year that ended March 31, 2023, STE’s net cash provided by operating activities stood at $756.95 million, up 10.5% from the prior-year period. As of March 31, 2023, the company’s total current assets came in at $2.01 billion, compared to $1.88 billion, as of March 31, 2022.
Analysts expect STE’s revenue and EPS for the fiscal third quarter ending December 2023 to come in at $1.36 billion and $2.23, representing increases of 11.9% and 10.3% year-over-year, respectively. Moreover, it surpassed the consensus EPS estimates in three of the trailing four quarters, which is promising.
The stock has gained 14.8% year-to-date to close the last trading session at $212. Over the past six months, it has gained 16.4%.
STE’s POWR Ratings reflect promising prospects. It has an overall rating of B, which translates to Buy in the proprietary rating system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Growth and a B for Quality. It is ranked #19 out of 137 stocks within the Medical - Devices & Equipment industry.
Beyond what we have just highlighted above, to see the STE’s additional ratings for Value, Momentum, Stability, and Sentiment, click here.
Embecta Corp. (EMBC)
EMBC is a medical device company that focuses on providing various solutions to enhance the health and well-being of people with diabetes. Its products include pen needles, syringes, and safety devices, as well as digital applications to assist people with managing diabetes.
On May 12, EMBC and Tidepool, a nonprofit organization committed to harnessing the power of technology to provide intuitive software products that help people living with diabetes, announced that the two organizations would partner to develop an Automated Insulin Delivery (AID) system for people living with Type 2 Diabetes (T2D).
EMBC’s CEO, Devdatt Kurdikar, said, "By partnering with Tidepool and tapping into their expertise on AID software development, we’re continuing our effort to deliver a user-friendly patch pump solution that will make life better for people living with T2D.”
The company paid a quarterly dividend of $0.15 for each issued and outstanding share of the company’s common stock to stockholders on June 13, 2023. It pays an annual dividend of $0.60 per share, which translates to a dividend yield of 2.51%.
EMBC’s trailing-12-month EBITDA margin of 31.19% is 783.4% higher than the 3.53% industry average. Its trailing-12-month ROTC and ROTA of 26.78% and 7.80% compare to the industry averages of negative 23.10% and 33.13%, respectively.
EMBC’s forward EV/EBITDA of 7.71x is 42.4% lower than the 13.39x industry average. Its forward EV/EBIT and Price/Sales multiples of 8.63 and 1.24 are 48.4% and 70.8% lower than the industry averages of 16.72 and 4.25, respectively.
For the fiscal second quarter that ended March 31, 2023, EMBC’s revenues grew marginally year-over-year to $277.10 million, while gross profit for the quarter stood at $189.80 million. For the same quarter, the company’s adjusted net income and adjusted net income per share came in at $43.30 million and $0.75, respectively.
Moreover, for the six months that ended March 31, 2023, EMBC’s cash and cash equivalents stood at $346.40 million, up 31.1% from the prior-year period. As of March 31, 2023, the company’s total current assets came in at $756.30 million, compared to $664.70 million as of September 30, 2022.
Analysts expect EMBC’s revenue and EPS for the fiscal fourth quarter ending September 2023 to come in at $278.57 million and $0.40, representing increases of 1.5% and 76% year-over-year, respectively. Moreover, it surpassed the consensus revenue estimates in each of the trailing four quarters.
The stock lost 1.1% intraday to close the last trading session at $23.70.
EMBC’s POWR Ratings reflect a robust outlook. It has an overall rating of B, which translates to Buy in the proprietary rating system.
The stock has an A grade for Value and Quality. It is ranked #28 within the same industry.
Click here to see the EMBC’s additional ratings for Growth, Momentum, Stability, and Sentiment.
Avanos Medical, Inc. (AVNS)
AVNS is a medical technology company that delivers clinically superior medical device solutions in North America, Europe, the Middle East, Africa, Asia Pacific, and Latin America.
On June 19, AVNS announced that it had entered into a definitive agreement to acquire Diros Technology Inc., a leading manufacturer of innovative radiofrequency (RF) products used to treat chronic pain conditions.
The addition of Diros' unique RF Trident technology is expected to further enhance AVNS' pain management treatment options and complement its premium COOLIEF Cooled Radiofrequency product offering.
AVNS’ trailing-12-month EBITDA margin of 16.01% is 353.5% higher than the 3.53% industry average. Its trailing-12-month ROCE, ROTC, and ROTA of 3.49%, 3.27%, and 2.57% compare to the industry averages of negative 42.62%, 23.10%, and 33.13%, respectively.
AVNS’ EBITDA and EBIT have grown at CAGRs of 28.6% and 54.4% over the past three years, respectively. Moreover, its revenue grew at 4.5% and 5.5% CAGRs over the past three years, respectively.
AVNS’ forward EV/EBITDA of 9.65x is 27.9% lower than the 13.39x industry average. Its forward EV/EBIT and Price/Sales multiples of 11.56 and 1.50 are 30.9% and 64.7% lower than the industry averages of 16.72 and 4.25, respectively.
For the fiscal first quarter that ended March 31, 2023, AVNS’ net sales stood at $191.70 million, while its gross profit came in at $104.50 million. The company’s adjusted EBITDA stood at $26.20 million, up 13.9% year-over-year.
AVNS’ adjusted non-GAAP net income and adjusted earnings per share grew 6.7% and 8% year-over-year to $12.7 million and $0.27, respectively. Moreover, as of March 31, 2023, the company’s total current liabilities stood at $158.50 million, compared to $185.80 million as of December 31, 2022.
AVNS’ revenue for the fiscal third quarter ending September 2023 is expected to increase marginally year-over-year to $202.45 million, whereas EPS is expected to grow 17.1% year-over-year to $0.45. Moreover, it surpassed the consensus EPS estimates in three of the trailing four quarters.
Over the past month, the stock has gained 9.1% to close the last trading session at $25.52.
It is no surprise that AVNS has an overall rating of B, which translates to Buy in the POWR Ratings system.
The stock has an A grade for Value and a B for Growth. It is ranked #21 within the same industry.
To see the additional ratings of AVNS for Momentum, Stability, Sentiment, and Quality, click here.
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STE shares were trading at $213.49 per share on Tuesday morning, up $1.49 (+0.70%). Year-to-date, STE has gained 16.15%, versus a 14.06% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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