The strongest growth outlook in over two years is approaching! US medical device stocks still need to endure another sluggish earnings season

Smart Finance APP notes that medical device companies are set to experience another sluggish earnings season, and will then enter 2027 with the strongest growth outlook in more than two years—after the sector endured a tough period marked by policy uncertainty, cyberattacks, and product recalls.

According to industry research data, sector-wide third-quarter earnings are expected to grow 4.8% year-on-year, weaker than the previous quarter and lagging behind the projected gains for the US benchmark stock index. By the first quarter of next year, this growth rate is expected to accelerate to 13%, marking the strongest performance for the sector since the end of 2024.

Despite modest expectations for the third quarter, Citi analyst Joanne Winsh and others remain optimistic about “localized growth highlights” emerging next year, while Barclays’ Christopher Pasquale expects revenue growth to stabilize.

The S&P 500 Health Care Equipment & Supplies Index—which includes pacemaker manufacturer Medtronic (MDT.US), hip replacement device maker Stryker (SYK.US), and surgical robotics firm Intuitive Surgical (ISRG.US)—has dropped more than 20% year-to-date. Over the same period, the broader market index has gained 13%.

Medical technology sector profit growth is expected to slow before a rebound

The medical device sector has been relatively immune to impacts from tariffs and energy shocks, but uncertainty surrounding possible changes to the Affordable Care Act and Medicaid programs under the “Inflation Reduction Act” has continued to weigh on market sentiment.

Industry research analyst Matt Henriksen said: “The sector’s status as a ‘safe haven’ has diminished.”

Evercore ISI analyst Vijay Kumar, speaking on hospital spending plans, said: “There’s definitely the question—should we pause some planned purchases of new projects or expensive new equipment, or defer some things until next year.”

JPMorgan analyst Robert Marcus said that the slow pace of product launches, biopharma attracting capital at the expense of medical devices, and a broader rotation of funds into AI-related stocks have also exerted pressure on the sector.

Individual challenges such as Boston Scientific (BSX.US) and Stryker facing cyberattacks, and Baxter International (BAX.US) undergoing product recalls, have further dampened investor confidence.

Medical technology sector underperforming the wider market

RBC Capital Markets analyst Kendall Oh wrote in a report: “It will be difficult to change the narrative for the sector in 2026, but we are optimistic about the positioning for 2027.”

Marcus said a decisive win for the Democrats in the midterm elections could boost medical device stocks, even though this would not affect medical policy in the next two years. “This has not yet been reflected in valuations and could provide a decent tailwind.”

Citi’s Winsh said Zimmer Biomet (ZBH.US) is in a new product cycle, while Edwards Lifesciences (EW.US) is about to report multiple clinical trial results.

Marcus said that although Boston Scientific is “still on the ‘penalty bench’,” new product launches and data catalysts in 2027 could pave a way out of its difficulties.

Industry research’s Henriksen commented: “Long-term innovation and strong surgical volumes support generally sound fundamentals,” highlighting the sector’s resilience in the face of short-term pressure.

Evercore’s Kumar said that key advances include pulsed field ablation (a technology that treats arrhythmias using high-intensity electrical pulses), continuous glucose monitoring for diabetes, and ongoing progress in surgical robotics.

Marcus noted that overall, as medical device companies reset expectations for 2027 and win back investors, this third-quarter earnings season could be viewed as an “important clearing event.”