Moderator: Marissa Bych, Principal, Gilmartin Group
Guest Speakers: Travis Steed, Managing Director, Equity Research, Bank of America & Ryan Zimmerman, Managing Director, Equity Research, BTIG
Earlier this week, Gilmartin Group’s Marissa Bych hosted a webinar with Travis Steed, Managing Director, Equity Research, Bank of America and Ryan Zimmerman, Managing Director, Equity Research, BTIG to discuss evolving investor sentiment, financing in the current market and expectations for medtech companies into the balance of 2023. Here are the key takeaways from our conversation:
Key Takeaways:
- Investors entered 2023 poised for a recession but rotated out of healthcare into high growth and cyclical sectors (tech; discretionary; homebuilders) as equity markets rallied early in the year, driving YTD healthcare and medtech underperformance.
- With ongoing market uncertainty and continued interest rate hikes, a rotation back into healthcare is not out of the question, and medtech has historically outperformed in market downturns.
- Companies that can show operating margin improvement, consistently generate cash flow, and have a realistic path to profitability are most attractive to investors, while investors are more cautious of companies needing additional funding, as the cost of capital overshadows the reward of high growth.
- Investors largely expect companies to deliver at-or-above consensus estimates this year, as many companies reset 2023 expectations during Q3 reporting season, then bracketed consensus with 2023 guidance while macro factors have improved (FX headwinds abating, relative staffing stability, and some supply chain resolution).
- With a lower base coming into the year, full-year guidance has been viewed as conservative across most companies in the space. Investors expect that numbers will move higher from here with a lower ‘acceptance threshold’ for exogenous impacts on performance. Stronger performance could be back-half weighted for many as structural factors improve.
- How stocks move in reaction to their results will be valuation dependent (higher multiple names face higher expectations for beating-and-raising).
- Revenue growth remains the most important metric to drive high-growth SMID stock performance, but appetite for ‘growth-at-all-costs’ has been traded for cost control and a path to profitability.
- Investors are also likely to look for names with less selective risk, defensible moats, and strong product cycles, as well as potential M&A prospects. Innovation and differentiation remain important.
- Following several M&A deals in recent months (J&J, Abiomed), (Abbott, Cardiovascular Systems), look for large-caps with strong balance sheets and acquisitive histories (for example: Abbott, Boston Scientific, Zimmer Biomet) to be shopping as they add to their growth profiles and round out assets.
- Private companies can consider engaging with public equity investors and sell-side analysts as early as Series B or Series C life-stage. Building an early and lasting relationship is important to help management understand Wall Street dynamics, build operational credibility as companies progress against key milestones, and help analysts better understand business dynamics. Rapport can continue to grow through challenging market cycles.
In conclusion, even in challenging markets, patients require care. Difficult conditions will abate over time, and there will be significant opportunities for companies to improve procedures, address healthcare costs, and contribute to better patient outcomes.
Gilmartin Group has deep experience working with both private and public companies in MedTech and across the healthcare space. For more information about how we strategically partner with our clients, please contact our team today.
Co-Authored by: Webb Campbell, Associate, Gilmartin Group & Noah Corin, Associate, Gilmartin Group