Moody's ups medical device industry rating to positive amid M&A, new products

Print 21 August 2015
Stacy Lawrence / Fierce Medical Devices

The typically conservative credit rating agency Moody's Investors Service has raised its outlook for the U.S. medical products and devices industry to positive from stable. The firm said it expects to see solid earnings growth over the next 12 to 18 months from the industry.

The positive view is driven by an expectation of significant cost synergies from the onslaught of M&A deals that have completed in recent months, as well as by the anticipation of significant new products aimed at reducing hospital readmissions and improving patient outcomes.

"Three major US medical device companies that we rate closed large deals this year and will benefit from cost synergies," Moody's VP Diana Lee, a senior credit officer who wrote the report, noted in a statement. "Furthermore, new products and somewhat better inpatient volume trends will boost EBITDA growth for device makers."

In addition, the report expects hospital admissions will continue to expand under the Affordable Care Act--further boosting sales and profitability for the group. Moody's specifically highlights Medtronic ($MDT), Boston Scientific ($BSX) and Stryker ($SYK) as beneficiaries of these trends.

But the agency expects that currency will continue to put a drag on growth rates. In emerging markets, while Moody's expects U.S. device makers will continue to expand sales, it also sees those governments moving to constrain costs.

"While effects from foreign exchange will show lower year-over-year growth over the next one to two quarters, we expect EBITDA growth of 4% to 5% for most of the outlook period," Lee concluded.

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