Backlog Grows for Orthopedic Procedures
But the disruption caused by COVID-19 has little effect on the device industry’s moats.
Editor's note: At the time of publication (July 2, 2020), a family member of the analyst owned shares in Stryker (SYK) in an account managed by a third party. Morningstar has confirmed that her ownership of Stryker did not influence any ratings or analysis.
Though some medical device companies indicated that April would probably be the nadir of COVID-19-related cancellations of non-pandemic medical procedures in the United States, we continue to think that procedure volume for the orthopedic companies will remain under pressure into the second half of the year, especially now that populous states like Florida and Texas have seen alarming rises in new SARS-CoV-2 infections. We’re holding steady on our fair value estimates for Stryker (SYK), Zimmer Biomet (ZBH), and Smith & Nephew (SNN), which have baked in our projection of a 75% decline in large joint replacement procedures for the second quarter, followed by a 50% decline in the same for the third quarter before further stabilization in the fourth quarter. Nonetheless, we see little in this near-term (albeit significant) disruption to procedure volume that holds implications for the wide and narrow economic moats that characterize the orthopedic device industry.
Debbie Wang does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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