THE COWEN INSIGHT
Our U.S. hospital administrator survey, with updated figures from our survey in June, indicates the elective procedure recovery pace may exceed Street expectations in 3Q’20. However, the results also put forward an underwhelming timeline for a return to elective procedure growth. The takeaways appear positive for MedTech in the short term, but are not fully in line with Street models, which bake in a return to revenue growth in 4Q’20.
Hospital Administrators Report Strong 3Q Elective Procedure Recovery Trends
The 25 hospital administrators we surveyed reported a collective 3Q experience that included sequential monthly improvements in elective procedure volumes. The median response from our hospital administrators suggests that procedure volumes recovered to 90% of pre-COVID-19 levels in July. This improved to 92% in August and 100% in September.
Relative to current consensus estimates, the survey results imply that 3Q’20 expectations for device intensive portfolios may prove conservative. The survey results are consistent with our channel checks and intra quarter commentary from MedTech management teams. We view the 3Q set-up as favorable for most of the companies in our coverage universe. If our respondents’ flattish run rate exiting 3Q reflects the broader U.S. hospital experience, investor sentiment toward the sector should improve with expectations for 4Q elective procedure volume growth moving higher.
The Return to Elective Procedure Growth Is Crucial for Investor Sentiment
If our hospital administrators’ strong 3Q elective procedure volumes reflect the broader experience at the majority of U.S. hospitals, investor sentiment toward the MedTech sector could receive a boost. However, our respondents also forecast a longer elective procedure recovery path relative to consensus expectations. This would cause turbulence to investors’ conviction in 2021 being a more “normal” year.
We asked the hospital executives when they expected certain procedure types to return to growth relative to pre-COVID-19 levels. Surprisingly, a minority of respondents expect a return to growth by the end of 2020 for every procedure category. Most respondents don’t expect a return to growth until 2Q’21 or beyond.
We continue to include conservative assumptions in our forecasts for our covered companies. We believe this is an appropriate approach, as the impacts of COVID-19 continue to present various unknowns. We think the potential for a seasonal surge, patient safety concerns around returning to hospitals or clinic visits, and the potential effects of unemployment are all factors that investors should consider and continue to aggressively track.
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