Medtronic’s Collateral Selloff Goes Too Far: Evercore’s Kumar

  • Health care equipment index on pace for worst day in 5 years
  • Analyst says weakness is extending to unrelated companies

Medtronic Plc’s disappointing second-quarter results are weighing on peers across the U.S. medical device industry -- even companies that aren’t direct competitors.

All 14 members of the S&P 500 Health-Care Equipment Index are down today, and the gauge is headed for its biggest one-day decline in more than five years. Medtronic fell 9.4 percent after its earnings announcement, while Edwards Lifesciences Corp., which competes with Medtronic in heart valves, lost 5.4 percent and Boston Scientific Corp., which sells rival pacemakers and stents, dropped 3.2 percent.

Although Medtronic’s large portfolio of products makes it a bellwether for several sub-sectors within the medical device industry, Evercore ISI analyst Vijay Kumar said too many stocks are falling on its news. Stryker Corp., Becton Dickinson and Co. and C.R. Bard Inc. are all lower even though they sell different types of products and don’t have direct exposure to heart devices, he said. The falloff for makers of diabetes devices also doesn’t make sense, he added, because Medtronic didn’t mention any market-related issues.

“Some of the reaction to the group is a little bit exaggerated,” Kumar said in a phone interview. He has a buy rating on Medtronic shares.

Kumar noted that medical device stocks have been beaten up since the U.S. elections, and investors are probably rotating out of the health-care sector into areas such as financials.

Omar Ishrak, Medtronic’s chief executive officer, said that the company faced slower-than-expected revenue growth in the quarter in part due to timing of new product approvals. The Dublin-based company lowered its full-year outlook and said some of these issues may persist over the near-term.

“Our business, this whole industry, is built on growth,” Ishrak said in an interview. “Health-care is a growth market. When there is any doubt at all about performance in that area, there is some level of nervousness.”

Health care is the worst-performing of the 11 S&P 500 sectors Tuesday.

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