These 2 ‘Strong Buy’ medical device stocks are poised for growth, analyst says

Every investor hopes to discover a growth stock, a stock poised for rapid appreciation and substantial long-term returns. The real challenge lies in identifying the right opportunities.

Several research firms now point to medical device companies as promising candidates. According to KPMG, the medical device industry is on a steady upward trajectory, with global annual sales expected to grow by more than 5% annually to nearly $800 billion by 2030. BCC Research offers an even more optimistic outlook, projecting the market to exceed $953 billion by 2027.

The reason behind this optimism is simple: innovation. Medical device companies are developing new tools that enable healthcare professionals to provide better diagnoses, more effective treatments and improved patient outcomes. As technological advances increase and an aging population increases demand for healthcare solutions, the sector will benefit from both long-term trends and pressing needs. All of this makes medical device stocks solid picks for investors looking to grow.

That’s exactly why B. Riley analyst Kyle Bauser recently highlighted two medical device stocks that he thinks are poised for solid gains — at least 60%, to be exact.

Additionally, after using the TipRanks database, we learned that Bauser’s picks have garnered enough positive reviews from the broader analyst community to earn a consensus rating of “Strong Buy.” Let’s take a closer look.

InfuSystem Holdings (Infuse)

The first stock we’ll look at, InfuSystem, is a device company that works with hospitals, surgery centers and oncology offices, offering a variety of infusion pump products. These devices are designed to calibrate fluid doses for intravenous administration. They are commonly used in the delivery of drugs and nutrients – fluids that must be monitored and administered to the patient in controlled amounts and doses. InfuSystem pumps can deliver fluids directly into the patient’s body and are available in high-volume and ambulatory models.

Customers can choose to purchase or lease infusion pumps, knowing that InfuSystem can deliver more than 60 different models with brands trusted by healthcare providers. Pumps are available as new or used and are guaranteed – even used pumps are backed by a 90-day warranty. InfuSystem’s rental option gives its customers options for flexible inventory management and allows rollover when newer models are available.

In addition to providing hardware for infusion pump systems, the company also provides backup services. InfuSystem offers both preventive maintenance and repairs and makes the service records of the devices available to the customer. This company’s business is a demonstration that a medical device supplier doesn’t have to deal with the latest technology to be cutting edge – InfuSystem is working to smooth out the bumps in one of the most critical items in the medical industry and its supply chain .

The story continues

Although this may seem like a modest business, it brought InfuSystem record revenues in the second quarter of this year. The company reported $33.7 million in top line revenue, up 6% year-over-year. By company division, Patient Services revenue totaled $20.2 million, while Device Solutions generated $13.5 million. Bottom line, the company posted earnings of 3 cents per share by GAAP measures. We should note here that InfuSystem has seen a “slow and steady” revenue growth pattern over the past few years.

This stock’s solid performance and strong position in a critical medical niche caught Bauser’s attention from B. Riley. “INFU has built a network of more than 800 paying contracts covering more than 96 percent of US lives, which we believe creates a significant competitive advantage and a barrier to entry for potential competitors,” Bauser said. “We believe the stock is significantly undervalued due to non-fundamental hiccups (eg, missed earnings and late filing) and should re-rate as the company continues the momentum seen last quarter – INFU trades at 1.3 times sales and EBITDA adjusted 7.1 times. versus the peer group at 2.2x and 11.6x respectively. We expect this year’s sales to grow in the high single digits with an adjusted EBITDA margin in the high-teens on a percentage basis. In addition, we expect margins to exceed 20% in the next 12-24 months.”

These comments support the analyst’s buy rating, and his $13 price target implies a one-year stock appreciation of 97.5%. (To track Bauser’s history, click here)

Overall, there are 3 recent analyst reviews here and all are positive, leading to a unanimous Strong Buy consensus rating. The stock’s $6.58 sale price and $12.75 average price target together indicate a 94% upside potential over the next 12 months. (See INFU stock forecast)

Technology of touch systems (TCMD)

The next stock on our list, Tactile Systems, runs on cutting-edge technology. This company’s focus is on the development of devices for the treatment of chronic conditions, particularly chronic swelling and/or breathing difficulties. These are not necessarily diseases themselves, but are often symptoms and can have a strong impact on the patient’s quality of life.

To help improve this quality of life, Tactile Systems offers a range of wearable products designed for intermittent pneumatic compression, meaning a regular, gentle squeezing action to counter swelling or lymphedema. The company offers these device solutions for three distinct areas of the patient’s body: the head and neck; upper body; and lower body. The company reports that its Flexitouch system achieved a 96% patient satisfaction rate and provided a 37% reduction in the cost of lymphedema expenses per patient.

Chronic respiratory problems are also associated with several health conditions, and Tactile Systems designed the AffloVest as a mobile airway clearing therapy. The vest can be worn over regular clothing and has been shown to help loosen and remove mucus buildup from the lungs, allowing patients to breathe more easily.

Tactile Systems recognized an important medical need and built a business to meet it. In its 2Q24 report, the company showed revenue of $73.2 million, up more than 7% year-over-year and $390,000 less than expected. The company’s net income came in at 18 cents per share and also beat expectations by 6 cents per share.

We meet analyst Bauser again, we find him upbeat here, noting that the company has targeted a large total addressable market. Bauser says of Tactile Systems, “Lymphedema and airway clearance disorders remain grossly underdiagnosed, undertreated and underserved. We believe TCMD has several opportunities to capitalize on these markets through investments in products, patient services, and sales and order operations. Simplifying the sales process and continuously improving at scale will likely drive market access and ultimately earnings.”

“There are nearly 2 million patients diagnosed with lymphedema in the US, with an additional ~20 million undiagnosed cases. Within the bronchiectasis patient population, there are approximately 500,000 diagnosed cases and 4.4 million undiagnosed patients,” Bauser continues. “We believe the improved margin profile remains significantly undervalued, as does the current valuation.”

Looking ahead, analyst B. Riley rates the stock a Buy with a price target of $23, implying a 61.5% upside over a one-year horizon.

The Wall Street consensus rating here is a Strong Buy based on 3 recent positive reviews. Shares are trading at $14.24 and have an average price target of $20.33, suggesting a one-year upside potential of 43%. (See TCMD stock forecast)

To find good ideas for trading stocks at attractive valuations, visit TipRanks’s Best Stocks to Buy, a tool that aggregates all of TipRanks stock information.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.