Medical Device Stocks Hit By COVID-19 Market Uncertainty

Medical device stocks usually enjoy a relatively recession-proof status, but they are feeling the pinch after stock selloffs hit them hard. Postponed elective surgeries have also left many organizations struggling with the effects of COVID-19. Firms like Boston Scientific, Medtronic, and Smith & Nephew have all reported their earnings projections will likely need to be cut for the next quarter.

Amongst the top 20 US-based med-tech companies, there has been an average drop of 17 percent over the past two weeks in stock prices. This decline reflects a similar trend in the Dow Jones and S&P, which each experienced losses of approximately 18 percent. Morgan Stanley analyst Debbie Wang specializes in the medical device sector and expresses her thoughts on how hard-hit healthcare stocks had been.

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“From a med-tech standpoint, there is uncertainty in the near term around medical resources and how COVID-19 might dampen the usual procedure volume we see for hip and knee replacements. Even non-elective procedures could be hurt,” Wang said. It’s a theory the analyst and her colleagues bandied about to explain why med-tech stocks have declined the way they did.

They believe hospitals may become flooded with patients suffering from COVID-19, which could make it challenging for people suffering from heart attacks and strokes to get the dedicated attention they need in a timely fashion. "However, from a longer-term perspective, it's likely that the majority of procedures will simply be delayed until after the pandemic is addressed."

China represents the biggest number of postponed elective procedures, and it's hurt medical firms large and small. “The business that we’re in is elective surgery for the most part,” Smith & Nephews CEO Roland Diggelmann told analysts during an earnings call. “Elective surgeries right now are not the focus of the Chinese authorities. They are focused, and rightfully so, on containing the outbreak of the virus.”

Over 80,000 Chinese were diagnosed with the novel coronavirus, and almost no elective surgeries were conducted in February. The country represents a fast-growing segment for S&P, with 7 percent of its revenue coming from them last year. Revenue surged up 24 percent from $270 million in 2018 to $336 million in 2019.

Another factor likely influencing the drop in stock prices is the impact of supply chain disruptions on medical device firms. Last month, several major med-tech companies stated the virus would be responsible for tens of millions of dollars in losses, and this took place before it spread to the rest of the world.

It's expected that the backlog in demand for these surgeries will pick up once coronavirus concerns begin to subside. Executives from S&N, Medtronic, and Boston Scientific anticipate this will bolster quarterly earnings once business resumes.