The medical device sector under-performed the S&P 500 index in April after a sharp swing over-performance during the 1st quarter, according to analysts at Morgan Stanley.
The 30 medtech stocks Morgan Stanley covers collectively under-performed the S&P by 4.1%, after besting the index by 4.9% during the 1st quarter.
"The device sector underperformed sharply in April, giving back much of the gains seen in 1Q14. Expectations were low for 1Q14, but deceleration from 4Q13 strength was steeper than expectations and reminded investors of ongoing structural pressure, driving the April 2013 sell-off," the Morgan Stanley analysts wrote today. "Device deceleration was more pronounced than we had modeled. Expectations into 1Q included significant deceleration across devices, but performance included a sharper decline, possibly from increased seasonality or an ACA impact. While we assumed substantial comp-adjusted deceleration across device sub-segments (200-300 bps on average), only cardio performance was in line with our expectations into the quarter. Ortho, Supplies, and Equipment were 80 bps, 60 bps, and 140 bps poorer than expected, respectively. Exhibits 41 and 42 show organic growth trends by sector and market cap."
There were few exceptions to the downturn, according to the report, including Edwards Lifesciences (NYSE:EW), Johnson & Johnson (NYSE:JNJ) and Zimmer (NYSE:ZMH). The analysts pegged the gains to individual developments for each company (Edwards’ legal win over heart valve rival Medtronic (NYSE:MDT); JNJ’s positive 1st-quarter results; and Zimmer’s blockbuster, $13.4 billion acquisition of Biomet).
Notable under-performers included Hansen Medical (NSDQ:HNSN), Intuitive Surgical (NSDQ:ISRG) and Accuray (NSDQ:ARAY). For Hansen, the analysts wrote, "Early enthusiasm waned heading into 1Q results early in May." The upside from Intuitive’s launch of a new robot-assisted surgery platform was eclipsed by its Q1 results; and Accuray suffered after its fiscal 3rd-quarter orders missed expectations, they wrote.