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1、COREEquity Research14 January 2019INDUSTRY UPDATEU.S. Medical Supplies & DevicesPOSITIVEUnchangedForafull list of our ratings, price target and earnings changesinthis report, please see table on page 2.U.S. Medical Supplies & DevicesKristen Stewart, CFA+ 1 212 526 6965BCI, USPatrick Dearchs, CFA+ 1

2、212-526-2404BCI, US* BARCIAYSU.S. Medical Supplies & DevicesInvestor Presentations TakeawaysLast week, most of the companies within our coverage universe presented at an industry conference. Our key takeaways are herein. We believe the industry underlying fundamentals continue to be favorable. Most

3、management teams suggested top-line underlying growth should be at least stable, although foreign exchange rates are expected todampthe reported results. We believe some companies could see some pressure on their EPS outlooks due to foreign exchange, potentially less favorable stock based compensati

4、on tax impacts, and purposeful investments. As such, there could be some risk ahead with the upcoming reporting season.Medtronic (OW)： Mgmt was very upbeat about the pipeline prospects, which we can understand as there are a number of products across all four business units. In the spirit oftranspar

5、ency, mgmt did flag that the Cardiac & Vascular Group would be softer (F3Q19/FY19) and the tax rate would likely see upward pressure in FY20 due to proposed changes that relate to companies domiciled outside the United States. We subsequently reduced ourEPS estimatesand PT (see Mgmt Tweaks Guidance；

6、 Back into the penalty box? 1/7/2019). We maintain our Overweight.Zimmer Biomet (UW)： Mgmt maintained its view that ZB is a two-yearturnaround story and as such, investors should not expect the company to grow at its weighted average market growth rate (of 2%-3%) until 2020. It cautioned on the cade

7、nce for 2019 noting that 2H would look betterthan 1H. Weveupdatedourmodel (mainly cadence for 2019). We maintain our Underweight. We believe a transformation is needed which will likely take several years and involve M&A/portfolio management.Teleflex (EW)： Mgmt reiterated its long-range plan as outl

8、ined at its May 2018 investorday, specifically its confidence in its 6%-7% sales growth. Managementdid flag a higher tax rate and FX headwind in 2019; were reducing our 2019 EPS estimate (to$ 10.74from$l 1.10), We maintain our PTand Equal Weight rating.Avanos (UW)： Mgmt continues to be optimistic ab

9、out its ability to accelerate the growth profile of the company and sees M&A as being a key ingredient toward shareholder value creation. Nothing changed our view on the potential headwinds forON-Q. We continueto rate AVNS shares Underweight.Abbott(OW)： Mgmt highlighted growth opportunities. Nothing

10、 new in ourview.Hill-Rom (EW) and Baxter (UW)： Both mgmts expressed confidence in achieving theirrespectivelong-rangegoals. Ourviewsonthestocksareunchanged.Edwards Lifesciences (UW): Mgmt remains upbeat about its TAVR prospects as well as the longer term opportunity with TMVR.Becton Dickinson (EW)：

11、Mgmt discussed its overall strategy and reaffirmed FY19 goals. It did note that F1Q19 does have some headwinds that will damp growth.Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies covered in its research reports. As a result, investors should be aware

12、 that the firm may have a conflict of interest that could affect the objectivity ofthis report. Investors should considerthis reportas only a single factor in making their investment decision.PLEASE SEE ANALYST CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 19.U.S. Medical Supplies & D

13、evicesIndustry View: POSITIVEAbbott Laboratories (ABT)Stock Rating: OVERWEIGHTIncome statement ($mn)2017A2018E2019E2020ECAGRRevenue27z39030,63132,00034,3177.8%EBITDA (adj)6,9417,6778,2349,0399.2%EBIT (adj)3,9204,3414,9085Z67513.1%Pre-tax income (adj)5,2695,9946,6967,49212.4%Net income (adj)4,4005,12

14、55Z6916Z36813.1%EPS (adj) ($)2.502.883.193.5612.4%Diluted shares (mn)1,749.01,769.01,776.31,782.20.6%DPS ($)1.081.141.231.337.4%Margin and return dataAverageEBITDA (adj) margin (%)25.325.125.726.325.6EBIT (adj) margin (%)14.314.215.316.515.1Pre-tax (adj) margin (%)19.219.620.921.820.4Net (adj) margi

15、n (%)16.116.717.818.617.3ROIC (%)7.510.110.711.910.1ROA (%)5.87.58.08.77.5ROE (%)14.216.416.917.916.3Balance sheet and cash flow ($mn)CAGRTangible fixed assets7,6077Z6377,9518,1572.4%Intangible fixed assets24,02023,41623z41623,416-0.8%Cash and equivalents9,4074z0288Z52311,0795.6%Total assets76,25068

16、,26571,41972,930-1.5%Short and long-term debt27,92419,43819,44217,660-14.2%Other long-term liabilities9,0309z0319Z43510,1183.9%Total liabilities45,15236,75337,55337,087-6.3%Net debt/(funds)18,51715,41010,9196,580-29.2%Shareholders equity30,89731,31833z67235,6504.9%Change in working capital-399436829

17、2N/ACash flow from operations5,5706Z2497,8568z70616.1%Capital expenditure-1,135-1,377-1,400-1,330N/AFree cash flow4,4354Z8726Z4567Z37618.5%Valuation and leverage metricsAverageP/E (adj) (x)27.724.021.719.523.2EV/sales (x)5.14.54.13.74.4EV/EBITDA (adj) (x)20.217.916.114.217.1FCF yield (%)3.23.54.95.7

18、4.3P/BV (x)3.93.93.73.53.7Dividend yield (%)1.61.61.81.91.7Net debt/EBITDA (adj) (x)2.72.01.30.71.7Total debt/capital (%)47.538.336.633.138.9Selected operating metricsAverageSG&A/sales (%)30.330.630.029.530.1R&D/sales (%)7.37.37.27.27.3R&D growth (%)49.611.33.67.217.9SG&A growth (%)29.112.92.75.412.

19、5Price (ll-Jan-2019)USD 69.33Price TargetUSD 80.00WhyOverweight? We view Abbott as a high-quality growth asset. We believe the company has a favorable mix of of business from bothaproductand geographic perspective. WeseetheMedical Device business as a key driver otgrowth going torward. We oeneve me

20、growrn prorne warrants a premium valuation.Upside caseUSD 90.00i neuubiutLLdbeueuefiubULievtjrdi Key id.cLur; ) approvalofnew prdaucts; 2)greatertraction ornew products; 3) successful integration ofSt. Judeand Alere businesses; and 4) stable-to-improving trends in nutritional.Downside caseUSD 56.00T

21、he downside case can bedriven by: 1) Foreign exchange rates; 2) slowdown in emerging market growth; 3)theinabilityto receive productapprovals and/or sales traction; 4) slower overall top-line growth; 5) challenges integrating acquisitions.Upside/Downside scenariosPrice HistoryPrior 12 monthsPrice Ta

22、rgetNext 12 monthsHighUpside90.0055.5856.00LowDownsideU.S. Medical Supplies & DevicesIndustry View: POSITIVEAvan os Medical Inc (AVNS)Stock Rating: UNDERWEIGHTIncome statement ($mn)2017A2018E2019E2020ECAGRRevenue6126526897115.1%EBITDA (adj)44609511236.9%EBIT (adj)-16418099N/APre-tax income (adj)-244

23、485102N/ANet income (adj)110886580-10.2%EPS (adj) ($)2.350.721.341.63-11.6%Diluted shares (mn)0.00.00.00.0N/ADPS ($)N/A0.000.000.00N/AMargin and return dataAverageEBITDA (adj) margin (%)7.19.313.815.811.5EBIT (adj) margin (%)-2.66.211.613.97.3Pre-tax (adj) margin (%)-3.96.812.314.47.4Net (adj) margi

24、n (%)18.013.69.511.213.1ROIC (%)6.15.74.04.75.1ROA (%)5.04.63.33.94.2ROE (%)9.16.74.85.56.5Balance sheet and cash flow ($mn)CAGRTangible fixed assets11014315216013.3%Intangible fixed assets9149559409270.5%Cash and equivalents22048655264242.9%Total assets2Z1961,9051,9782,072-1.9%Short and long-term d

25、ebt581248248248-24.7%Other long-term liabilities50313131-14.3%Total liabilities981594605613-14.5%Net debt/(funds)361-238-304-393N/AShareholders equity1,2151,3111,3731,4596.3%Change in working capital-8332N/ACash flow from operations144-5490114-7.6%Capital expenditure-43-42-24-25N/AFree cash flow101-

26、956689-4.1%Valuation and leverage metricsAverageP/E (adj) (x)18.360.332.226.634.4EV/sales (x)3.92.82.52.32.9EV/EBITDA (adj) (x)55.029.818.214.729.4FCF yield (%)4.2-5.33.85.42.0P/BV (x)N/AN/AN/AN/AN/ADividend yield (%)N/A0.00.00.00.0Net debt/EBITDA (adj) (x)8.3-3.9-3.2-3.5-0.6Total debt/capital (%)32

27、.315.915.314.619.5Selected operating metricsAverageSG&A/sales (%)49.046.042.541.044.6R&D/sales (%)6.26.56.56.66.5R&D growth (%)-0.510.56.14.85.2SG&A growth (%)-3.00.0-2.5-0.3-1.4Price (ll-Jan-2019)USD 43.17Price TargetUSD 36.00Why Underweight? We view the sale of S&IP as a positivecatalystand believ

28、e the company has the right strategy (e.g. redeploying theS&IP proceeds into medical device growth initiatives). However, we believethereare risks to the ON-Q* franchise which may pressure earnings and leave the company short of its LRP goals. We rate AVNS Underweight.Upside caseUSD 55.00Theupsideca

29、secould bedriven by: l)greatersales growth; 2) greater margin expansion; 3) successful M&Athatleadstoan improved outlook; and 4) greater recovery in theON-Q business if drug shortages easeand/ordrug competition fails.Downside caseUSD 30.00The downside case could bedriven by: 1) decelerating salesgro

30、wth trends; 2) the inability to achieve cost savings; 3) unsuccessful M&A; 4) an intensifying drug shortage, which could further pressureON-Qsales; and 5)newpaindrugapprovals/competition.Upside/Downside scenariosKnee HistoryPrior 12 monthsHighPrice I argetNext 12 monthsUpside72.9630.00LowDownsideU.S

31、. Medical Supplies & DevicesIndustry View: POSITIVEBaxter International (BAX)Stock Rating: UNDERWEIGHTIncome statement ($mn)2017A2018E2019E2020ECAGRRevenue10,56111,086llz23211,7373.6%EBITDA (adj)2,3262,5492z7503,0649.6%EBIT (adj)1,5651,7511,9282,25012.9%Pre-tax income (adj)1,6781,9742,1162,44613.4%N

32、et income (adj)1,3761,6391,7141,95712.4%EPS (adj) ($)2.483.003.203.6814.0%Diluted shares (mn)555.0546.5535.3532.3-1.4%DPS ($)0.610.730.871.0519.8%Margin and return dataAverageEBITDA (adj) margin (%)22.023.024.526.123.9EBIT (adj) margin (%)14.815.817.219.216.7Pre-tax (adj) margin (%)15.917.818.820.81

33、8.3Net (adj) margin (%)13.014.815.316.714.9ROIC (%)10.913.113.515.213.2ROA (%)8.09.810.111.49.8ROE (%)15.118.218.720.218.0Balance sheet and cash flow ($mn)CAGRTangible fixed assets4,5884,5654,5514,538-0.4%Intangible fixed assets4,4734,3434,1854,033-3.4%Cash and equivalents3,3942,6322Z9153,141-2.6%To

34、tal assets17,11116,73316,89517z1520.1%Short and long-term debt3,5123,4883,4883,188-3.2%Other long-term liabilities1,6651,5451,5451,545-2.5%Total liabilities7,9957,7287,7387,500-2.1%Net debt/(funds)11885657347-26.2%Shareholders equity9,1249,0229,1739,6692.0%Change in working capital25448299354.8%Cash

35、 flow from operationslz8371,8242,4902,64012.9%Capital expenditure-634-678-650-650N/AFree cash flow1,203lz1461,8401,99018.3%Valuation and leverage metricsAverageP/E (adj) (x)27.022.320.918.222.1EV/sales (x)3.43.33.23.03.2EV/EBITDA (adj) (x)15.414.413.211.713.7FCF yield (%)3.43.15.15.64.3P/BV (x)4.14.

36、03.93.73.9Dividend yield (%)0.91.11.31.61.2Net debt/EBITDA (adj) (x)0.10.30.20.00.2Total debt/capital (%)27.827.927.524.827.0Selected operating metricsAverageSG&A/sales (%)22.822.321.520.821.9R&D/sales (%)5.85.75.75.75.7R&D growth (%)-7.5-2.3-1.7-4.3-4.0SG&A growth (%)4.6-2.92.4-1.10.7Price (ll-Jan-

37、2019)USD 66.81Price TargetUSD 67.00Why Underweight? We believe Baxter is poised to drive sales growth acceleration in through new productlaunches. However, we believethe Consensusexpectationsaretoohigh. Wesee earnings riskfrom competitive generic launches, inabilityto launch pharma productsduetothe

38、warning letter, a highertax rate, and FX. OurEPS estimates are below the Street.Upside caseUSD 76.00The upside case could be driven by: 1) generic competition being lessthanexpected; 2)greater success in bringing new products to market; and 3) greater-than-expected improvements in profitability.Down

39、side caseUSD 57.00The downside case could be driven by 1) greater- than-expected Cyclo and BREVIBLOC sales; 2) competitive pressures in renal and medication delivery; and 3) Foreign exchange rates (strengthening of US Dollar).Upside/Downside scenariosKnee HistoryPrior 12 monthsHighPrice I argetNext

40、12 monthsUpside57.00LowDownsideU.S. Medical Supplies & DevicesIndustry View: POSITIVEBecton Dickinson and Co (BDX)Stock Rating: EQUAL WEIGHTIncome statement ($mn)2018A2019E2020E2021ECAGRRevenue15,98317,33918,30419,2766.4%EBITDA (adj)4,7595,2995Z8596,3099.9%EBIT (adj)2,7813,0493Z5773,98112.7%Pre-tax

41、income (adj)3,5824,0734,4844,97111.5%Net income (adj)2,8713,3303,7594,28014.2%EPS (adj) ($)11.0112.0813.3314.8510.5%Diluted shares (mn)264.6275.6282.1288.12.9%DPS ($)3.003.083.333.666.8%Margin and return dataAverageEBITDA (adj) margin (%)29.830.632.032.731.3EBIT (adj) margin (%)17.417.619.520.718.8P

42、re-tax (adj) margin (%)22.423.524.525.824.0Net (adj) margin (%)18.019.220.522.220.0ROIC (%)6.88.19.310.88.7ROA (%)5.36.37.18.16.7ROE (%)13.714.916.017.515.5Balance sheet and cash flow ($mn)CAGRTangible fixed assets5,3755,3685,6846,0123.8%Intangible fixed assets40z04138,41436,91435,414-4.0%Cash and e

43、quivalents1,1401,6922,0652,71033.5%Total assets53,90453z11352,68152,547-0.8%Short and long-term debt21,49518,90416,78515,090-11.1%Other long-term liabilities6,8006Z9387,2657Z5953.8%Total liabilities32,91030,78829,19828z055-5.2%Net debt/(funds)20,35517,21214,72012z380-15.3%Shareholders equity20,99422

44、,32523,48324,4915.3%Change in working capital249-66116109-24.2%Cash flow from operations2,8654,7405Z1955,72626.0%Capital expenditure-895-1,040-lz098-lz157N/AFree cash flow1,9703,6994,0964,56932.4%Valuation and leverage metricsAverageP/E (adj) (x)20.818.917.215.418.1EV/sales (x)5.14.54.23.84.4EV/EBIT

45、DA (adj) (x)17.214.813.011.714.2FCF yield (%)2.44.75.46.24.7P/BV (x)2.92.82.72.72.8Dividend yield (%)1.31.31.51.61.4Net debt/EBITDA (adj) (x)4.33.22.52.03.0Total debt/capital (%)50.645.941.738.144.1Selected operating metricsAverageSG&A/sales (%)25.124.723.823.524.3R&D/sales (%)6.26.16.16.16.1R&D gro

46、wth (%)27.07.25.65.311.3SG&A growth (%)37.06.81.74.012.4Source: Company data, Barclays Research Note: FY End SepPrice (ll-Jan-2019)USD 228.87Price TargetUSD 260.00Why Equal Weight? We believe BD should successfully integrate Bard and achieve the planned synergies, though the market already appreciat

47、es this based on itssuccess integrating CareFusion. While hY19t bPS have been recalibrated, we think the btreer sForecastrorrvzumaysrmoeroonign. we see some upside near-term, but not enough to warrant a change in view. We rate EW.Upside caseUSD 285.00Theupsidecasecould bedriven by: l)better-than- ex

48、pectedrevenueand/orcostsynergiesassociated with the Bard acquisition; 2) improvement in overall growth rates; and 3) higher earnings.Downside caseUSD 200.00Thedownsidecasecould bedriven by: l)Foreign exchange (stronger US dollar) which could pressure earnings; 2)highercommodity costs; 3)slower-than-

49、 expected sales from the legacy Bard business; 4) slowdown in emerging market growth; and 5) inability to offset Gore royalty.Upside/Downside scenariosPrice HistoryPrior 12 monthsHighPrice TargetNext 12 months265.87208.62LowCurrent228.87285.00200.00Target260.00UpsideDownsideU.S. Medical Supplies & D

50、evicesIndustry View: POSITIVEEdwards Lifesciences Corp (EW)Stock Rating: UNDERWEIGHTIncome statement ($mn)2017A2018E2019E2020ECAGRRevenue3,4343,7984,0504,2397.3%EBITDA (adj)1,0971,2131,348lz4158.8%EBIT (adj)lz015lz1341,2461,2858.2%Pre-tax income (adj)1,0191,1421,2571,3128.8%Net income (adj)8209981,0

51、931,12811.2%EPS (adj) ($)3.804.675.155.3111.9%Diluted shares (mn)215.9213.8212.3212.3-0.6%DPS ($)0.000.000.000.00N/AMargin and return dataAverageEBITDA (adj) margin (%)32.031.933.333.432.6EBIT (adj) margin (%)29.629.930.830.330.1Pre-tax (adj) margin (%)29.730.131.030.930.4Net (adj) margin (%)23.926.

52、327.026.625.9ROIC (%)20.525.124.422.823.2ROA (%)14.518.518.317.317.2ROE (%)27.729.528.225.927.8Balance sheet and cash flow ($mn)CAGRTangible fixed assets6808861,1421,34525.5%Intangible fixed assets1,5951,5891,5811,569-0.5%Cash and equivalents8186258511,11610.9%Total assets5,6495,4045,9766,5064.8%Sho

53、rt and long-term debt1,036593593593-17.0%Other long-term liabilities852751788816-1.4%Total liabilities2Z6932,0152,0972,158-7.1%Net debt/(funds)218-32-258-523N/AShareholders equity2,9563,3883,8794,34813.7%Change in working capital5224443387.9%Cash flow from operationslz0019031,2261,2959.0%Capital exp

54、enditure-168-261-350-320N/AFree cash flow8336428769乃5.4%Valuation and leverage metricsAverageP/E (adj) (x)40.232.729.728.832.9EV/sales (x)9.48.47.87.48.3EV/EBITDA (adj) (x)29.426.423.622.325.4FCF yield (%)2.62.02.83.12.6P/BV (x)11.29.68.47.59.2Dividend yield (%)0.00.00.00.00.0Net debt/EBITDA (adj) (

55、x)0.20.0-0.2-0.4-0.1Total debt/capital (%)26.014.913.312.016.5Selected operating metricsAverageSG&A/sales (%)28.928.728.728.528.7R&D/sales (%)16.116.417.417.416.8R&D growth (%)25.012.813.24.513.9SG&A growth (%)9.510.16.63.97.5Price (ll-Jan-2019)USD 152.80Price TargetUSD 150.00Why Underweight? We bel

56、ieve sales growth is likely to slow as Edwards faces competition in transcatheter aorticvalves (TAVR). We expect limited leverage as Edwards invests in transcatheter mitral valve (TMVR/r) opportunities. Oursalesand EPS estimates are belowtheStreet.TMVR/rrepresenta potential second act“ butthere are

57、still risksand itslikely a crowded space.Upside caseUSD 175.00The upside case may bedriven by: 1) better-than- expectedTAVRsales; 2) greater leverage in the P&L;3) stronger uptake ofTMVrin Europe; and 4) faster- than-expected timing forTMVR/r products.Downside caseUSD 123.00The downside case may bed

58、riven by: l)delaysor inability to commercialize TMVR/r technologies; 2) a slowdown inTAVRsalesduetomarketslowdown and/or competitive pressure; 3) FX rates; and 4) greater expenses to support TMVR/r.Upside/Downside scenariosPrice HistoryPrior 12 monthsPrice TargetNext 12 monthsHighUpside175.00175.00L

59、owDownsideU.S. Medical Supplies & DevicesIndustry View: POSITIVEHill-Rom Holdings Inc (HRC)Stock Rating: EQUAL WEIGHTIncome statement ($mn)2018A2019E2020E2021ECAGRRevenue2,8482Z8912,9863,1093.0%EBITDA (adj)5706066526926.7%EBIT (adj)37241947752812.4%Pre-tax income (adj)39943849254511.0%Net income (ad

60、j)32134638643110.3%EPS (adj) ($)4.755.125.696.299.8%Diluted shares (mn)67.667.567.868.50.4%DPS ($)0.780.860.951.0410.1%Margin and return dataAverageEBITDA (adj) margin (%)20.021.021.822.321.3EBIT (adj) margin (%)13.114.516.017.015.1Pre-tax (adj) margin (%)14.015.216.517.515.8Net (adj) margin (%)11.3