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Stock Strategist Industry Reports

Orthopedic Device Makers Take a Step Back

Competitive advantages appear to be weakening.

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Orthopedic industry moat trends are declining as a result of increasing regulatory and reimbursement pressures, and ongoing economic uncertainty caused recent cuts to our fair value estimates.

As a result of increasing regulatory and reimbursement pressures, more supplier switching could be possible. While not a dire situation, we believe orthopedic device makers will have more incentive to engage in competitive behavior, especially if timelines to market remain extended in the long run and decision-makers increasingly consider economics rather than technology features. As a result, we believe competitive advantages are weakening at wide-moat firms Stryker (SYK) and Zimmer (ZMH) and narrow-moat firm Smith & Nephew (SNN).

Julie Utterback does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.