Medical technology stocks gained ground Wednesday after a Citi Investment Research analyst said opportunities remain in a challenging sector as he sifted through the companies ahead of their quarterly results.
Amit Bhalla said diagnostic test maker Hologic Inc. is his top pick in the sector, and said Hologic, along with Botox maker Allergan Inc., eye care products maker Alcon Inc. and medical device and software maker Varian Medical Systems Inc. should meet or surpass Wall Street's expectations. He added that investors have become risk averse about medical technology stocks, but some should perform well.
Hologic reported disappointing fiscal second-quarter results in May, and took a large first-quarter charge related to its buyout of Cytyc Corp. Bhalla said the stock should rise if Hologic is simply able to avoid "bad news."
Hologic also agreed to buy diagnostic products maker Third Wave Inc. in June, and Bhalla expects Third Wave to detail trial results for key products at the annual meeting of the American Association for Clinical Chemistry, which runs from July 27 to July 31.
In April, Third Wave asked the Food and Drug Administration to approve two tests for the human papillomavirus, which can cause cervical cancer and genital warts.
Hologic shares gained 42 cents to $23.04 in afternoon trading.
The analyst expects Varian will reported increased European orders for its RapidArc targeted radiation therapy system. Hospitals are cutting back on their capital spending, but Bhalla said orders for radiation treatment devices have not been affected.
He raised his price target on Edwards Lifesciences Corp. to $63 per share from $50, expecting better sales of catheters and the Sapien heart valve. He cautioned that the stock is becoming more closely tied to Sapien market performance, creating a greater risk if the product's launch is disappointing.
Varian shares gave 92 cents to $51.16, and Edwards stock rose 67 cents to $62.94. Shares of Alcon picked up $2.96 to $165.99.
Bhalla reduced his profit estimates for rival eye care company Advanced Medical Optics Inc. because of the "difficult" U.S. laser vision correction market, and slow sales of cataract products. He expects thinner profit margins for the company and cut his price target to $22 per share from $26.
Its shares were unchanged at $19.06 in afternoon trading.
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