Moody’s: Medical Device Earnings Forecast Decreased Based on Lower Sales

The outlook for the U.S. medical products and devices sector has been changed to stable from positive, Moody’s Investors Service said in a new report. Slowing global economic growth and the diversion of healthcare expenditures toward fighting the coronavirus will pressure medical device sales in the near term, resulting in lower earnings than previously forecast.

“The stable outlook for the US medical products and devices sector reflects our revised EBITDA forecast of 2 percent to 4 percent over the next 12 to 18 months, down from 5 percent to 6 percent previously,” said Scott Tuhy, a Moody’s senior vice president. “We expect a pullback in consumption in the first half of the year followed by a moderate recovery, assuming global efforts to arrest the spread of coronavirus are successful. As the coronavirus continues to spread, hospitals will need to prioritize infected patients who are most vulnerable to its effects.”

They will therefore shift capacity away from elective procedures that can be postponed, though patients will likely still undergo these procedures down the line. Nevertheless, it remains highly uncertain when conditions will stabilize, and operating room bottlenecks and other constraints could limit how quickly deferred procedures are undertaken.

Aside from coronavirus-related risk in the near term, over the longer term, revenue trends for medical products and devices makers are promising. Innovation, especially in minimally invasive procedures and products such as continuous glucose monitoring systems and robotics, will continue to drive mid-single digit organic growth for a sustained period once activity returns to normal.

Meanwhile, Moody’s expects companies’ margins to improve only slightly over the next couple of years, given cost savings from 2017’s mega-mergers have largely been achieved. Companies will increase investment in research and development in order to maintain or enhance revenue growth, while they likely will also be able to moderate some discretionary expenses to keep margins stable.

For more information on research on and ratings affected by the coronavirus outbreak, please see moodys.com/coronavirus.