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Moody's upgrades medical device industry to "positive"

TAGS: Business

Moody's Investors Service (New York) has upgraded the medical device industry from "stable" to "positive," forecasting 4 to 5% earnings growth over the next 12 to 18 months. Driving the solid EBITDA [earnings before interest, taxes, depreciation and amortization] growth are large mergers and acquisitions (M&As), new products and an uptick in hospital admissions, says the rating agency. On the downside, effects from foreign exchange rates will show lower year-over-year growth over the next one to two quarters. 

It's more good news for the medtech sector and its supply chain, as this upgrade comes on the heels of a report on the global medical polymers market, which is forecast to expand at an 8.4% annual compound growth rate through 2020.

Image courtesy ddpavumba/freedigitalphotos.net.
M&As played a significant role in Moody's upgrade of the medical device industry. "Three major U.S. medical device companies that we rate closed large deals this year and will benefit from cost synergies," said Diana Lee, a Moody's Vice President - Senior Credit Officer.

The ratings agency did not name the three companies (Medtronic, Becton Dickinson, and Zimmer, perhaps?), writes Nancy Crotti on Qmed.com, adding that they will contribute 1 to 2% of the sector's aggregate earnings growth during 2015 and 2016. Without these savings measures, the negative effects of foreign exchange would be more noticeable during 2015, adds Crotti, citing the report.

Other factors boosting EBITDA growth for U.S. device makers include continued expansion into emerging markets, although they will face some headwinds as governments attempt to restrain costs, and increased hospital admissions as a result of Medicaid expansions and broader access to health insurance through the Affordable Care Act, aka Obamacare.

"US Medical Products and Devices: Outlook Changed to Positive as M&A Synergies, New Products and Admissions Uptick Drive Profits," is available to Moody's subscribers and for purchase on Moody's website.

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