ALC - Johnson & Johnson's Q2 is positive for MedTech - Baird

2023-07-23 12:00:31 ET

Soon after Johnson & Johnson ( NYSE: JNJ ) topped expectations with its Q2 2023 results last week, Baird came up with a report indicating brighter days for MedTech, mainly due to accelerating medical procedure volumes and a waning COVID impact in China.

With their MedTech divisions recording double-digit percentage growth, JNJ ( JNJ ) and its rival medical device maker Abbott Laboratories ( ABT ) posted better-than-expected Q2 results on Thursday, rallying the subsector.

iShares U.S. Medical Devices ETF ( IHI ) recorded its second consecutive weekly gain, rising ~1.6% compared to ~0.7% in the S&P 500.

"From a high level, we believe JNJ's above-expected Q2 performance is a positive read-through for many of our covered medtech stocks heading into Q2 reporting season," Baird analysts led by Jeff Johnson and David Rescott wrote.

Despite softer comps, the firm saw a sequential acceleration of JNJ's Q2 MedTech revenue and highlighted its strong worldwide performance and the relaxation of COVID-led 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 (that weighed down 1Q23) eased, which we believe should be viewed positively given intra-quarter concerns on this front," the analysts wrote.

Despite a potential impact from volume-based procurements, the analysts argued that MedTech's outperformance was a major reason for the company to raise its full-year growth outlook, given normalizing procedure volumes and staffing levels.

Baird specifically noted positive read-through to the eye care market, pointing to a favorable impact on contact lens makers The Cooper Companies ( COO ) and Alcon ( ALC ).

Citing additional tailwinds in the orthopedics and cardio segments, the firm included Boston Scientific ( BSX ), Edwards Lifesciences ( EW ), and Enovis ( ENOV ) as potential beneficiaries from the results.

Despite a Neutral rating on Medtronic ( MDT ), Baird's view on MedTech is largely positive, with Outperform ratings on Boston Scientific ( BSX ), Edwards Lifesciences ( EW ), Enovis ( ENOV ), Zimmer Biomet ( ZBH ), Stryker ( SYK ), The Cooper Companies ( COO ), and Alcon ( ALC ).

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