Investing.com -- Morgan Stanley (NYSE:MS) has upgraded its outlook for the European medical technology sector to "attractive," flagging improving market conditions and a strong potential for rebound in 2025.
After a challenging 2024, the sector is expected to recover, driven by stable patient volumes, easing market pressures, and favorable valuation dynamics.
The note projects that the average medtech company will achieve 6% organic growth while maintaining margins exceeding 18%.
Specific market catalysts, such as France's hearing aid reimbursement reforms, further bolster this optimistic outlook.
The medtech sector's historical pattern of rebounding after a down year underscores Morgan Stanley's confidence.
Analysts note that 2024 saw a decline in sector share prices, but history suggests a typical rebound of 41% following such downturns.
This confidence is supported by factors including stable U.S. capital expenditure, the anticipated effects of China's economic stimulus, and sector valuations that compare favorably with both the broader EU market and U.S. medtech peers.
These elements create a compelling case for renewed growth in 2025.
Among individual stocks, Amplifon (BIT:AMPF) and Coloplast (CSE:COLOb) have emerged as "top picks," albeit for contrasting reasons.
Amplifon has been rated "overweight" due to its strong growth potential, robust fundamentals, and leadership position in the market. On the other hand, Coloplast is rated "underweight,” reflecting valuation concerns and anticipated near-term challenges.
Morgan Stanley identifies three preferred stocks for 2025. Amplifon stands out for its market-leading position and positive catalysts, including France’s reimbursement cycle.
Fresenius SE (ETR:FREG) is recognized for its solid growth fundamentals and attractive valuation, while Siemens (ETR:SIEGn) Healthineers earns praise for its market leadership and long-term growth prospects.
Conversely, Coloplast, Sonova, and Straumann are highlighted as the least favorable investments, facing issues such as near-term challenges, risks to earnings estimates, and less favorable valuations.
Additionally, Morgan Stanley has revised its ratings for certain stocks, upgrading Medacta to "overweight" and downgrading Qiagen (NYSE:QGEN) to "equal-weight."
These changes reflect recalibrated expectations, with Medacta benefiting from strong fundamentals in orthopedics and Qiagen seeing moderate growth prospects.
The report also delves into end markets to watch in 2025. Diagnostics, hearing aids, and orthopedics emerge as promising areas, with companies like Biomerieux (EPA:BIOX), Amplifon, Demant, Smith & Nephew (LON:SN), and Medacta receiving favorable recommendations.
In contrast, dental and dialysis markets are less appealing, as reflected in "Underweight" ratings for Straumann and Fresenius Medical Care (NYSE:FMS).
While uncertainties persist, including inflation, China's economic conditions, and potential U.S. tariffs, Morgan Stanley emphasizes the offsetting positive trends.
The French hearing aid market, for instance, is expected to experience significant growth due to the fourth anniversary of its full reimbursement policy.
Additionally, stable U.S. investment in medtech infrastructure and easing inflation pressures further enhance the sector’s outlook.