‘Fundamentals Appear Positive’: KeyBanc Suggests 2 MedTech Stocks With up to ~40% Upside

For investors seeking out the best portfolio choices in a new year, few sectors offer the well-rounded benefits of medical technology. MedTech stocks represent the cutting edge of the healthcare sector, combining the sexy know-how of high-tech with the defensive attribute of living in an absolutely essential industry. This gives the sector a solid foundation, leading one analyst to say that the ‘fundamentals appear positive.’

That analyst, KeyBanc sector expert Brett Fishbin, focuses on healthcare stocks generally and MedTech in particular. He lays out a clear case for going bullish on these stocks: “We are taking a constructive view on the space, as industry fundamentals appear broadly positive relative to the past few years. Specifically, we would maintain or increase MedTech exposure into 2024, as we believe several limiting factors are now in the rearview, including previous COVID resurgences and subsequent staffing and supply chain challenges. Additionally, we expect a return to more consistent MSD+ average growth trends, supported by a healthy backdrop for hospital activity and elective procedural trends exiting 2023.”

So, let’s follow this train of thought. Using the TipRanks platform, we’ve looked up the Wall Street view on two of Fishbin’s MedTech stock picks, ones he sees adding up to ~40% in gains over the next year; according to the data, the Street sees these stocks as Buy-rated, too. Here are the details, along with the KeyBanc commentaries.

Inspire Medical Systems (INSP)

We’ll start with a company that focuses on sleep apnea, a potentially dangerous breathing condition that causes airway obstructions during sleep. The most common current treatment is the CPAP device, but that has not been found suitable for every sleep apnea patient. This is where Inspire Medical enters the picture.

Inspire offers a solution for patients who cannot use the CPAP mask. The company’s mask-free sleep apnea therapy works through a different mechanism to clear airway obstructions, allowing sound sleep and general health improvements. Inspire’s treatment system is based on an implanted device that delivers an electrical impulse to the smooth muscles of the airway, causing them to activate and open any obstruction. The company reports that 91% of patients are satisfied with the therapy, that 94% of users say that it is better than the CPAP device – and that 90% of patients’ partners report a decrease in loud snoring.

This device is the first implanted neurostimulation implant designed for the treatment of obstructive sleep apnea to receive FDA approval for use. The Inspire device has been developed for a minimum of intrusive procedures. The patient receives the implant in an outpatient procedure, and can then activate it using a hand-held remote unit. The device can simply be turned off during waking hours, when it is not needed. Inspire has been able to secure approval of its device with a number of important health insurance providers, including such major government-funded entities as the VA and Medicare.

Turning to the financial side, we find that Inspire released its most recent quarterly results – for 4Q23 – last week. The company’s quarterly top line came to $192.5 million, up 40% year-over-year and $1.28 million better than had been anticipated. At the bottom line, the company reported a solid profit of 49 cents per share – where the forecast had been for a 6-cent loss, making for a powerful 55-cent per share beat.

From KeyBanc, Fishbin lays out the sound case for investing in Inspire, starting with the company’s potential for growth: “We see durable advantages that should support market share as other players eventually enter the U.S. In addition to a first-mover advantage, it is continuing to advance its technology with a steady cadence of upgrades to its platform. It has also grown its TAM with new label expansions in 2023.”

The analyst goes on to explain specific reasons why this MedTech stock is primed for more gains, writing, “Several growth catalysts appear already in place, which we believe support meeting or exceeding ~25% consensus revenue growth expectations over the next few years. Key catalysts supporting adoption include: 1) resolution of previous reimbursement constraints; 2) increasing profitability for providers and surgeons; 3) investments in direct-to-patient marketing; and 4) investments in OUS market development.”

Going forward from these comments, Fishbin puts an Overweight (Buy) rating on the stock, with a $278 price target that points toward a one-year upside potential of 41.5%. (To watch Fishbin’s track record, click here)

The Moderate Buy consensus rating on INSP is based on 14 recent analyst reviews that break down to 10 Buys and 4 Holds. The shares are trading for $196.38 and their average price target of $249.46 implies a 27% increase on the one-year time horizon. (See Inspire’s stock forecast)

ICU Medical (ICUI)

The medical profession presents practitioners and patients with a unique set of challenges, not least of which is the possibility of exposure to bloodborne infection. The day-to-day work of medical professionals, and the normal experience of patients even during well-visits, routinely involves hypodermic injections and blood draws, as well as less frequent procedures involving IV infusions. All of these necessarily bring both sides – practitioners and patients – into contact with blood and other bodily fluids, and so increases the risk of pathogen exposure.

ICU Medical directly addresses this important issue through the development, manufacture, marketing, and distribution of high-end, state-of-the-art devices to enhance both the safety and efficacy of IV infusion therapies. The company’s product lines include everything needed to set up and administer IV treatments: the ‘vascular access’ devices, including hypodermics, ports, and catheters; the ‘infusion consumables,’ such as IV connectors, disinfecting caps, and closed system transfers; IV solutions, for both injection and irrigation; and the full range of infusion pumps and software needed to control and monitor IV infusions.

None of these needs are new – ICU has been in business since 1984 – but they are vital. And they are big business. This company has a market cap of $2.44 billion, a global customer base, and billion-dollar-plus annual revenue in a growing market. In 2021, ICU brought in $1.31 billion at the top line; in 2022, that figure was up to $2.27 billion.

In the most recent quarterly report, however, revenues were down year-over-year. That release, covering 3Q23, showed a top line revenue total of $553.3 million. This was down 7.5% from the previous year, and came in approximately $17 million below the forecast. The picture was better at the bottom line, where ICU’s non-GAAP EPS of $1.57 was 19 cents per share better than had been expected.

Checking in again with Brett Fishbin, we find the KeyBanc analyst upbeat on ICUI going forward, even though he is cognizant of current headwinds. Fishbin writes of the stock, “We expect gradual recovery in organic growth trends, but acknowledge some continued NT uncertainty. We believe underlying performance of its portfolio could become more visible into ‘24/25, as Smiths rev stabilizes, but are conservative in our assumptions as it could take a few more qtrs. We see potential upside from an increased cadence of new pump placements, and subsequent recurring rev streams.”

As for specific factors that should boost the stock, the analyst says, “Management has already de-risked 2024 margin expectations, and we see drivers supporting LT upside, including: 1) increased OpLev; 2) normalization in cost inflation; 3) a second phase of Smiths synergies; and 4) modest pricing.”

For Fishbin, this is all reason to rate ICUI as Overweight (Buy), and he backs that with a $134 price target implying a solid share appreciation of 29% in the next 12 months.

Once again, we’re looking at a stock with a Moderate Buy analyst consensus – but it’s unanimous, based on 2 recent positive reviews. The shares have a current selling price of $104.02, and their $122 average target price suggests the stock will gain 17% over the next year. (See ICUI stock forecast)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.