AUGUST RECAP & BEYOND
Healthcare outperforms the S&P 500 for the third month in a row.
The Healthcare sector was up 4.2% in August, again outperforming the S&P 500, which gained 3.0%. After lagging the broader healthcare sector in July, Providers & Services and Medtech both saw strong gains in August, gaining 6.8% and 6.0% respectively. Small and Mid-Cap stocks (SMIDs) saw the strongest gains and largely outperformed large caps. Medtech is now the best performing healthcare sub-sector with a 26.4% YTD gain, compared to 12% for the broader healthcare sector and 8.5% for the S&P 500
Medtech outperforms due to strong earnings season.
From the Gilmartin Group client list, Surmodics was a big winner gaining 34% for the month after reporting solid results and raising guidance for FY 2018. GenMark also saw a big gain of 28% during the month after strong reported results. While Glaukos was another winner during the month, gaining 64%, this was largely driven by the news that Alcon was pulling its competing product CyPass off the market.
Multiple Expansion and M&A Activity.
With the healthcare sector outperforming the broader market YTD, the traditional large cap medtech companies now average a P/E of 20.2x. This reflects a 15.7% premium to the the S&P 500. This premium is also being reflected in M&A activity where the 37 medtech deals completed this year have seen an average of 5.2x forward 12 months revenue multiple (a ten-yr high).
As expected, August was a quiet month with three healthcare IPOs pricing out of a total of nine deals. Pricing and aftermarket performance were weaker for the healthcare IPOs this month, which all priced at or near the low-end of their filing ranges and traded flat to down from pricing to the end of the month. There was, however, reasonably strong follow-on activity to quarter, as companies take advantage of market strength..
Source: Thompson Reuters and FactSet