Moody’s Raises U.S. Medical Device Market Rating from Stable to Positive

The US medical products and devices industry will see solid EBITDA growth over the next 12 to 18 months, driven by large M&A deals, new products and an uptick in growth of hospital admissions, says Moody’s Investors Service. The rating agency has revised its outlook to positive from stable on the industry.

“While effects from foreign exchange will show lower year-over-year growth over the next one to two quarters, we expect EBITDA growth of 4%-5% for most of the outlook period,” says Diana Lee, a Moody’s Vice President – Senior Credit Officer.

“Three major US medical device companies that we rate closed large deals this year and will benefit from cost synergies,” adds Lee. “Furthermore, new products and somewhat better inpatient volume trends will boost EBITDA growth for device makers.”

In addition, US medical device makers will continue to expand in emerging markets, though governments will continue to restrain costs.

The report, “US Medical Products and Devices: Outlook Changed to Positive as M&A Synergies, New Products and Admissions Uptick Drive Profits,” notes that synergies from the major M&A deals that recently closed will contribute 1%-2% of the sector’s aggregate EBITDA growth during 2015-16.

Meanwhile, new products, including those that are focused on helping hospitals reduce readmissions and improve outcomes, will aid sales at companies such as Medtronic plc. (A3 negative), Boston Scientific Corporation (Baa3 stable) and Stryker Corp. (A3 stable). At the same time, the uptick in admissions growth — due partly to Medicaid expansion and expanded insurance coverage under the Affordable Care Act — will bolster sales and profitability.