Hospital supply companies have the potential to generate earnings growth in the next several years despite a potentially tough economic environment, The Associated Press reports, citing a Morgan Keegan analyst.
Lawrence Keusch highlighted in a Tuesday morning research note Baxter International Inc., Covidien PLC-which has a North Haven surgical-tools plant — and Cooper Cos. as firms with solid fundamentals that are well positioned to grow. The analyst has an “Outperform” rating for all three.
“In all of these companies, we believe that reasonable growth is on deck, even if there is some continued softness in general surgical procedure trends or challenges to government reimbursement,” the analyst wrote.
Keusch said he likes companies that have a strong sales base outside the U.S. He noted that global demand for health care is expected to keep rising. That, combined with increased spending on hospital supplies in emerging markets, is expected to contribute to continued revenue and earnings growth for the next several years.
The analyst also prefers companies with limited direct Medicare exposure and strong balance sheets. In particular, he noted that Baxter and Covidien have solid free cash flow and relatively low debt-to-total capital ratios. The size of future Medicare reimbursements is uncertain because of expected U.S. budget-cutting.
The analyst also highlighted Masimo Corp. as a potential pick for long-term investors. He described it as a stock that has gone through “significant multiple compression, despite attractive long-term fundamentals.”
