Medtech earnings estimates may see 'significant' upward revisions
David Roman, Goldman Sachs head of US medtech and healthcare IT research, joins Market Domination to explain why many in the medtech industry are now set up for upward revisions of earnings estimates.
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as you had the chance to talk to folks in the MedTech industry here, it seems like one of the biggest headwinds this year has been concerned over tariffs, right? And the fact that at least some of this stuff gets made in China and other areas abroad and imported here to the US. So I'd love to start there and get your take on what you're hearing from these companies.
Excellent. Uh, thank you for having me today. Uh, so you're right. Tariffs has been a major concern for investors. That did drive companies to lower their outlooks for 2025 on most recent earnings calls. If you listen to the first quarter earnings calls, most companies did take take reductions reflecting the then in place tariffs. If you look at MedTech though in context, about 70% of medical devices sold in the US are actually made in the US. This is a significant amount of onshore manufacturing. And unlike some other parts of healthcare where you do see the move of IP around the world for for to to manage effective tax rates, MedTech R&D is very heavily domiciled in the US. So as we as we reflect on kind of where tariff policy sits today, we actually expect fairly significant upward revisions and earnings estimates as we go through second quarter earnings, uh, to take into account what are obviously tariff rates that are moderated, especially on China from what we saw during the April, uh, April earnings season.
That's those supply chain stats are interesting, David. How has it always been like that or has there been a shift in the last 5 or 10 years in that industry?
So it's actually been a pretty long-standing strategy for MedTech companies to manufacture where they sell. And and and I think it's it's a good point because that trend did accelerate during, uh, the first round, the first Trump administration when tariffs went into place. But remember, the medical device industry is very much a manufacturing industry. So things like freight and logistics costs do go into the calculation when companies think about where to put manufacturing. It also allows them to compete locally. So for example, most take GE Healthcare, who has about 12% of their revenue in China, something like 70 to 80% of what they manu of what they sell in China is manufactured, uh, and sourced locally. And that puts them in a position to be able to compete effectively with companies who are domestically headquartered there. The same is true in the US. Uh, companies try to put manufacturing very close to where they do R&D, and the reason for that is rapid prototyping and, um, trying to accelerate the development of products because this is very much a iterative industry. Putting product development and manufacturing closely aligned to one another has actually been a competitive advantage for several companies.
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