When the COVID-19 pandemic began a little more than two years ago, elective surgeries nearly vanished and even so-called necessary surgeries diminished as they took a back seat to COVID care.
Now it appears that surgeries are bouncing back. Johnson & Johnson (JNJ 1.49%) just reported good results for its medtech segment, and that's a good bellwether for such surgical stocks as Intuitive Surgical (ISRG -1.69%) and Stryker Corporation (SYK -0.62%). Let's take a look at each of them.
Johnson & Johnson (JNJ 1.49%) had its third-quarter earnings call last week. While MedTech is just one of four J&J segments, it did $6.7 billion in sales in the quarter, up 2.1% year over year. Ashley McEvoy, the worldwide chairman of its Medical Devices segment, said surgeries are returning to pre-pandemic levels.
"We're going to continue to manage through the macroeconomic factors like hospital staffing, like inflation, like supply constraints, and some of the overhang of the pandemic," McEvoy said. "But we are encouraged with procedural volumes in many parts of the world."
The headwinds the company is facing are familiar throughout the industry -- an improved dollar is causing downward pricing pressure overseas, and supply issues remain. Staffing issues at hospitals are also limiting how quickly surgeries can bounce back.
While surgeries are returning in general, how much so depends on the surgery. Johnson & Johnson's McEvoy said that while spinal surgeries are still slow, other surgical areas, such as cardiac surgeries, stroke management, cataracts, joint replacements, and even weight-loss surgeries are coming back well.
The biggest standout for J&J's MedTech segment was subsidiary Biosense Webster. It launched the OCTARAY Mapping Catheter in the quarter and saw sales increase by nearly 24% over the same period in 2021, McEvoy said. Overall, J&J reported revenue of $23.8 billion in the quarter, up 1.9% year over year, and earnings per share (EPS) of $1.68, up 22.6% over the same period in 2021.
Johnson & Johnson's shares are down slightly so far this year, but up more than 2% over the past month.
Intuitive Surgical is programmed to grow
Intuitive Surgical's shares are down more than 39% so far this year but have risen more than 14% over the past month. The healthcare company specializes in devices that help doctors perform robotic-assisted minimally invasive surgeries.
Intuitive reported Q3 earnings last week and, like Johnson & Johnson, saw a rise in surgical volume. The company said worldwide procedures performed by its da Vinci robotic surgery systems grew roughly 20% compared to the same quarter last year.
That translated into more revenue for Intuitive, which reported $1.56 billion in sales in the quarter, up 11% year over year, though net income was down 11% to $324 million compared to Q3 2021 and EPS was $0.90 compared to $1.04.
One reason net income was down is that the company spent $1 billion on share repurchases and capital expenditures. Jamie Samath, the company's chief financial officer, also said that supply chain issues, inflation, and a stronger dollar have cut into the company's margins.
Overall, the number of da Vinci systems installed grew to 7,364, up 13% over the same quarter last year. The company also got clearance from Japan for its latest system, the da Vinci SP, to be used in general surgeries, as well as thoracic, urologic, gynecological, and trans-oral head and neck surgeries. The system is already approved in the U.S. and Korea for urology and the removal of certain throat cancers.
Intuitive CEO Gary Guthard said in the company's Q3 earnings call that the fastest-growing surgeries performed by da Vinci systems include weight-loss surgery, gall bladder removals, and hernia repair.
Stryker poised for another strong quarter
Stryker makes medical technology products -- everything from biological implants to surgical instruments, sutures, and 3D surgical systems. The company is scheduled to present Q3 earnings on Oct. 31.
The company already seemed headed in the right direction in the second quarter. It posted revenue of $4.5 billion, up 4.6% year over year, and net income of $656 million, up 10.8% over the same period in 2021. EPS was up 11% year over year to $1.72.
Stryker operates in two segments, MedSurg along with Orthopaedics and Spine. The former saw sales of $2.5 billion, up 8% over the same period in 2021, led by endoscopy, instruments, and neural cranial sales. Orthopaedics and Spine saw growth of only 0.5%, year over year. The company said it expected full-year revenue growth of between 8% and 9%.
In Stryker's Q2 earnings call, CEO Kevin Lobo said shipment delays are affecting the company's larger capital sales, but most of its sales are in smaller-capital items and supply issues seem to be abating. CFO Glenn Boehnlein added that staffing shortages at hospitals, plus specific supply shortages in electronic components, are headwinds the company is facing.
Stryker's stock is down more than 17% so far this year but up more than 6% over the past month.
JNJ Revenue (Annual) data by YCharts
Looking at great potential for growth
The three companies are showing that there seems to be pent-up surgical demand. While staffing and supply chain issues are still slowing growth, those are macroeconomic factors that are likely to ebb over time. In the short run, all three companies are well-established and have had steady revenue growth (with the exception of during pandemic lows) that appears likely to continue to take off again.
