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Barclays | U.S. Medical Supplies & Devices
14 January 2019 2
Summary of our Ratings, Price Targets and Earnings Changes in this Report (all changes are shown in bold)
Company Rating Price Price Target EPS FY1 (E) EPS FY2 (E)
Old New 11-Jan-19 Old New %Chg Old New %Chg Old New %Chg
U.S. Medical Supplies & Devices Pos Pos
Teleflex (TFX) EW EW 255.99 266.00 266.00 - 9.88 9.88 - 11.10 10.74 -3
Zimmer Biomet Holdings Inc (ZBH) UW UW 104.28 110.00 110.00 - 7.65 7.65 - 7.83 7.82 0
Source: Barclays Research. Share prices and target prices are shown in the primary listing currency and EPS estimates are shown in the reporting currency.
FY1(E): Current fiscal year estimates by Barclays Research. FY2(E): Next fiscal year estimates by Barclays Research.
Stock Rating: OW: Overweight; EW: Equal Weight; UW: Underweight; RS: Rating Suspended
Industry View: Pos: Positive; Neu: Neutral; Neg: Negative
Valuation Methodology and Risks
U.S. Medical Supplies & Devices
Teleflex (TFX)
Valuation Methodology: In setting our price target, we primarily rely on a forward price/earnings methodology. Our price target of $266 applies
a PE multiple of 25x our 2019 EPS estimate of $10.74.
Risks which May Impede the Achievement of the Barclays Research Valuation and Price Target: Upside: To the extent NeoTract (Urolift) sales
are higher than expected, it could drive upside to sales and earnings, leading to a higher PE. Downside: If UroLift sales disappoint, the core
growth fails to improve, FX (a stronger US Dollar), and higher interest rates (as half of debt is floating).other risks include the timing and receipt
of new product approvals, competitive pressures (particularly for key products like UroLift), significant changes in reimbursement, and FDA or
other government actions.
Zimmer Biomet Holdings Inc (ZBH)
Valuation Methodology: In setting our price target, we primarily rely on a forward price/earnings methodology. Our price target of $110 applies
a multiple of 14xour 2019E EPS estimate of $7.82.
Risks which May Impede the Achievement of the Barclays Research Valuation and Price Target: Upside: Resolution of FDA matters,
acceleration in top line growth. Downside: Delay of new product approvals, failure to see significant increases in new product uptake, negative
earnings revisions, additional costs associated with ongoing manufacturing issues. Other risk factors include significant reimbursement changes,
competitive pressure, dilution associated with potential acquisitions, integration of acquired businesses, proceeds from the sale of businesses,
and FDA or other government actions.
Source: Barclays Research.
Barclays | U.S. Medical Supplies & Devices
14 January 2019 3
Medtronic
Medtronic PLC(MDT): Quarterly and Annual EPS (USD)
2018 2019 2020 Change y/y
FY Apr Actual Old New Cons Old New Cons 2019 2020
Q1 1.03A 1.17A 1.17A 1.17A 1.22E 1.22E 1.25E 14% 4%
Q2 1.07A 1.22A 1.22A 1.22A 1.27E 1.27E 1.30E 14% 4%
Q3 1.17A 1.23E 1.23E 1.24E 1.31E 1.31E 1.36E 5% 7%
Q4 1.42A 1.49E 1.49E 1.50E 1.58E 1.58E 1.61E 5% 6%
Year 4.68A 5.11E 5.11E 5.13E 5.38E 5.38E 5.53E 9% 5%
P/E 18.116.6 15.8
Source: Barclays Research.
Consensus numbers are from Thomson Reuters received on 11-Jan-2019; 14:35 GMT
Medtronic’s management continues to believe the current pipeline is the most robust in the
company’s history, highlighting a number of new products across its four business units.
Some of the key products include next-generation transcatheter aortic valve replacement
devices, transcatheter mitral valve replacement systems, the Micra AV leadless pacemaker,
Reveal LINQ 2.0, next-generation Solitaire, Integrated navigation with Mazor X, DBS primary
cell + sensing, advanced hybrid closed-loop (insulin pump/CGM) system,a surgical robotic
platform, cranial mounted DBS, renal denervation for hypertension, and a portable
hemodialysis system.Despite management’s upbeat commentary on the pipeline, the stock
traded lower the day of the presentation reflecting, in our view, some of the more cautious
commentary around near-term Cardiac & Vascular Group (CVG) performance and the
potential effects of proposed tax guidance.
With regards to CVG, management revised down its guidance for both F3Q19 and FY2019.
CVG is now expected to grow 1.5%-2.0%, down from 3.5% +/- in F3Q19, and 3.0%-3.5%,
down from 4.0% +/- for FY2019. The revision in guidance was due to the following issues:
LVAD softness: Medtronic expects slower growth in its left ventricular assist device
(LVAD) business due to two factors. First, the earlier than (it) expected receipt of
destination therapy for Abbott’s Heartmate 3 brought additional competitive
headwinds. Second, changes to the United Network for Organ Sharing (UNOS)
guidelines in July 2018 created a greater availability of hearts for transplants.
“Cautiousness” on DCB usage: Management also noted “cautiousness” with respect to
usage of drug-coated balloons (DCBs) following journal articles calling into question the
safety of paclitaxel, the drug used in commercially available DCBs. The company noted it
is working with the FDA and plans to present patient level analysis at the upcoming
Leipzig Interventional Course (LINC) conference in late January, as well as at an
upcoming VIVA summit in May. We note, this could also have negative implications for
Becton Dickinson’s DCB business as well.
Due to recent tax proposals, management commented that its tax rate in FY2020 could a
100bp-200bp increase from its underlying rate of about 15%. As a result, FY2020 EPS
growth is expected to fall below its targeted long-term growth rate of 8%. Management is
still in the planning stages for FY2020 and we believe it would look for ways to offset to the
extent it did not impact the long-term growth prospects of the company.
What’s next for MedtronicWe expect read-through’s on the end markets from other
MedTech companies during the upcoming earnings reports. Medtronic will report its F3Q19
results on Feb 19.
MDT
Stock Rating
OVERWEIGHT
Industry View
POSITIVE
Price Target
USD 104.00
Price (11-Jan-2019)
USD 84.84
Potential Upside/Downside
+22.6%
Barclays | U.S. Medical Supplies & Devices
14 January 2019 4
Zimmer Biomet
Zimmer Biomet Holdings Inc(ZBH): Quarterly and Annual EPS (USD)
2017 2018 2019 Change y/y
FY Dec Actual Old New Cons Old New Cons 2018 2019
Q1 2.13A 1.91A 1.91A 1.91A 1.98E 1.92E 1.96E -10% 0.52%
Q2 2.08A 1.92A 1.92A 1.92A 1.96E 1.93E 1.97E -8% 0.52%
Q3 1.72A 1.63A 1.63A 1.63A 1.64E 1.70E 1.68E -5% 4%
Q4 2.10A 2.19E 2.19E 2.18E 2.24E 2.26E 2.23E 4% 3%
Year 8.03A 7.65E 7.65E 7.63E 7.83E 7.82E 7.83E -5% 2%
P/E 13.013.6 13.3
Source: Barclays Research.
Consensus numbers are from Thomson Reuters received on 11-Jan-2019; 14:35 GMT
Zimmer Biomet’s prepared remarks summarized the company’s current organizational
priorities for 2019 and its vision for 2020 and beyond.
With respect to the 2019 priorities:
Supply: management feels that it has resolved its supply situation but that it still needs
to gain the full confidence of its sales organization and that it will focus more on supply
efficiency.
Quality remediation: Management is committed to remediation and is focused on
shifting to best-in-class quality. It will also look at cost-reduction opportunities.
New product introductions: Management believes it is entering into a phase with
exciting new product launches that include the Persona Partial Knee, T