The Medical Device industry has been riding high on optimism of late, courtesy of the Senate’s latest decision to lacerate the Affordable Care Act (ACA) by the end of July. In a bill passed on May 4, the House voted to eliminate the expensive Cadillac health plans and the ‘burdensome job-killing’ medical device taxes that had been enacted previously, under the ACA, widely known as Obamacare.
Secondly, the Patient and State Stability Fund (PSSF) amendment in the ‘Trump-care’ regime looks optimistic at the moment. Per the postulates of the PSSF, the government will set aside $100 billion for over 10 years as a ‘risk-sharing’ program to provide payments to health insurers for individual claims of the prospective patients.
We believe the sharing of the cost burden by the government, if anything, would result in lower premiums, broadening the customer base for the Medical Instrument companies that would have otherwise suffered owing to their exorbitant products and services.
Woes Still Remain
The ‘Trump-card’ has finally started to act in favor of the Republicans as it promised to exterminate the infamous 2.3% medical device tax. However, the latest revelation by some moderate senators to ‘keep some of its taxes,’ has once again started to create quite a stir in the medical device space.
Also, despite the solid prospects of the Obamacare pullback, the latest ‘Trump-care’ module has failed to impress Americans, thanks to a report by NBC News that reveals unfavorable poll results by the Kaiser Family Foundation. The poll suggests that 55% of the Americans have registered votes against Trump’s latest healthcare module.
Meanwhile, ‘Trump-care’ has proposed a hike in the U.S. FDA medical product user fee. Under Trump’s proposed budget, medical device user fees are expected to be around $439 billion in 2018, which is almost three times the current level. This is a huge burden for the digital health industry and small companies in the medical device space.
Under the existing schedule, the FDA is authorized to collect $999.5 million in user fees and inflationary adjustments from the companies. The usage fees are already sky high and a further hike would only have raised regulatory barriers, adding to the concerns of small-to-medium sized medical device companies.
Choosing the Winning Stock
Amid such a volatile backdrop, we believe stocks with strong fundamentals will make lucrative additions to your portfolio. We have taken the help of the Zacks Stock Screener to select favorable stocks. To shortlist the stocks from the vast universe of medical devices, we have picked the ones that carry a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Inogen Inc. (INGN – Free Report) develops, manufactures and markets portable oxygen concentrators (POC). POCs are used by patients who suffer from chronic respiratory conditions and need long-term oxygen therapy.
Inogen has had an impressive run on the bourse over the past three months, representing a stellar return of 21.8%, much higher than the Zacks categorized Medical Instruments sub-industry’s increase of roughly 10.5%.
The company’s estimate revision trend for the current year has been favorable. In the past 60 days, five analysts moved north, with no movement in the opposite direction. The magnitude of estimate revision increased around 12.2% to $1.10 per share over the same time frame.
Luminex Corp. (LMNX – Free Report) in Austin, TX, develops, manufactures and markets proprietary biological testing technologies with applications throughout the life sciences and diagnostics industry. Luminex has a broad product portfolio that comprises its advanced xMAP, xTAG and MultiCode technology. The company has been making noteworthy progress with another major product in its pipeline – the ARIES system.
Meanwhile, the price performance at Luminex has been robust with a return of 9.5% over the last three months, trading above the Medical Instruments industry.
The company’s estimate revision trend for the current year has been encouraging. In the past 60 days, one analyst moved up with no movement in the opposite direction. The magnitude of estimate revision increased around 10% to 44 cents per share over the same time frame.
Baxter International (BAX – Free Report) is a global medical technology company. The company’s impressive product pipeline is a key catalyst. Baxter recently launched a new version of its AK 98 hemodialysis (HD) system to help dialysis providers minimize the operational challenges associated with hemodialysis.
A glimpse at the price performance of the stock reveals that Baxter added 16.8% over the last three months. Additionally, the company’s estimate revision trend for the current year has been rising. In the past 60 days, nine analysts moved up with no movement in the opposite direction. The magnitude of estimate revision increased around 5% to $2.27 per share over the same time frame.
Baxter also achieved a regulatory milestone for its advanced dialysis technology. The company received guidance from the FDA clearing the regulatory pathway for its home peritoneal dialysis (PD) solution system.
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