Kaufman Bros. on Medical Technology - Keeping Things Simple as We Enter 2012

Kaufman Bros. on Medical Technology - Keeping Things Simple as We Enter 2012 Already Weighed Down by Lingering Macro Uncertainties, Heightened Regulatory Scrutiny, Elections & Supreme Court Hearings

Analyst, Vivian Cervantes, said, "In 2011, the Medical Technology sector performed in line with the S&P 500, which were both flat with year ago levels. A volatile year, with the IHI index down 15.6% from its 52-week high, the sector was weighed down by a slowing growth outlook with lingering volume and pricing pressures from multiple headwinds. In our coverage universe, cardiovascular ranked in the bottom of the performance range, with neuromodulation at the top. Women's health ranked second, followed by orthopaedic, with standalone spine underperforming musculoskeletal."

"In 2012, we expect macro and industry headwinds to persist, with added pressure and volatility as the Supreme Court will hear arguments on the Healthcare law in March with a ruling likely by June, the presidential election in the fall, and MAC audits commencing at the start of January."

"In "keeping things simple," we focus on companies that we believe cuts down on our worry points, given an already challenging backdrop (particularly in 1H12) and easing as some of the uncertainties begin to lift in 2H12. Thus, we prefer stocks that are levered to: 1) therapies that are generally not delayed, such as cancer/oncology; 2) new product technology cycles; and 3) firm revenue and earnings growth outlook, with minimal company specific factors that handicap. Companies in our coverage universe that we believe fit our criteria, and therefore included in our 2012 top picks are ranked as follows:

1) Hologic (Nasdaq: HOLX)(BUY, increasing price target to $21 from $19) on positive leverage to a new technology cycle with 3D Tomosynthesis facilitating early breast cancer detection; 2) Varian Medical (NYSE: VAR)(BUY, increasing price target to $72 from $68) on positive leverage to new technology cycles with TrueBeam in premium and UNIQUE in economically sensitive markets vis-à-vis growing incidence of cancer, which became the number one cause of death worldwide, surpassing cardiovascular disease in 2010; 3) Stryker (NYSE: SYK)(BUY, increasing price target to $58 price target) as it leverages a broad diversified platform, strong management execution, and a healthy balance sheet.We also look for gross margin benefits, with low hanging fruit likely evidenced beginning in 1H12, as the company is now over a year into is global manufacturing consolidation efforts earmarked to drive efficiencies, and 4) AtriCure (Nasdaq: ATRC)(BUY, increased price target to $16 on December 22, 2011) on firm low teens revenue outlook given: 1) an industry first surgical AF FDA label, facilitating share gains over time; 2) AtriClip market penetration; and 3) geographic expansion.

"In evaluating our coverage universe, we have removed St. Jude Medical (NYSE: STJ)(BUY, lowering price target to $42 from $50) from our top picks list, mainly due to the Riata distraction and with potential share loss offsets from Quadra not evidenced until the device moves through its U.S. rollout in 1H12. We are also upgrading Cyberonics (Nasdaq: CYBX) to a BUY (from HOLD) and are increasing price target to $38 (from $28)...Finally, although current NuVasive (Nasdaq: NUVA)(HOLD, lowering price target to $15 from $21) valuation appears attractive, particularly given known and relatively understood spine industry headwinds that persist into 2012, continuing IP legal battles and a business model in transition keep us on the sidelines."

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• Growth isn't weak enough to truly undercut inflation pressures - BMO
• Park National Corp. (PRK) Tops Q1 EPS by 36c
• Netflix (NFLX) raised to Buy at Needham & Company on revenue upside