Orthopedic Device Makers Take a Step Back (Morningstar)
Competitive advantages appear to be weakening.
Orthopedic industry moat trends are declining as a result of increasing regulatory and reimbursement pressures, and ongoing economic uncertainty caused recent cuts to our fair value estimates.As a result of increasing regulatory and reimbursement pressures, more supplier switching could be possible. While not a dire situation, we believe orthopedic device makers will have more incentive to engage in competitive behavior, especially if timelines to market remain extended in the long run and decision-makers increasingly consider economics rather than technology features. As a result, we believe competitive advantages are weakening at wide-moat firms Stryker(SYK) and Zimmer (ZMH)and narrow-moat firm Smith & Nephew (SNN).
Because of increasing economic uncertainty, we believe patients may continue delaying orthopedic procedures, at least in the short term. As a result, we recently lowered our near-term estimates for Smith & Nephew, Stryker, and Zimmer, causing fair value estimate cuts of 6%, 7%, and 4%, respectively. However, we still believe significant marg...
