Wall Street’s Take on Orthopedics 4Q 2018

Wall Street’s top analysts are wrapping up their analysis of 2018 for suppliers of hip and knee products.

Larry Biegelsen, senior analyst at Wells Fargo, gave his clients a report after three out of the four top reconstructive (hip and knee) companies (Johnson & Johnson, Stryker, and Zimmer Biomet) reported Q4 results.

Biegelsen estimated that the global recon market decelerated sequentially in Q4 by 30 basis points (+2.0% year-over-year[y/y]) led by the United States. The U.S. recon market decelerated 130 bps (+1.2% y/y).

Biegelsen reported that Stryker saw notable growth acceleration on a stacked two-year basis and that J&J also saw an uptick. He noted that the sequential deceleration in U.S. hips appears to be led by Zimmer Biomet.

Biegelsen concluded that the recon market appears to have decelerated in Q4 both on a year-over-year and sequential basis. However, the market also appears to have improved on a stacked two-year basis in each quarter. Biegelsen also noted that the recon market grew at a rate of +1.6% y/y for the full year of 2018, which was below the full year 2017 level of +2.1% y/y.

Craig Bijou wrote to his clients at Cantor Fitzgerald after Smith & Nephew announced its fourth quarter earnings, which was the end of the earnings season for the big four orthopedic companies. Bijou reported that although the global recon market experienced a sequential slowdown this quarter, the overall global recon markets were relatively stable.

Bijou reported that the U.S. knee market appeared “somewhat soft” in 4Q and 2018 and worth watching. He noted that Stryker’s U.S. knee share continues to be driven by its MAKO total knee and cementless knee and that Zimmer Biomet is still underperforming the overall market.

Bijou stated that he sees pricing pressure as stable and expects it to remain in the negative 2-3% range in 2019.