Are These 3 Stocks Survivors? – Johnson & Johnson (JNJ), Stryker Corporation (SYK), Boston Scientific Corporation (BSX)

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May 2013 will mark the second annual National Mobility Awareness month. In preparation of the campaign, Jeff Probst, the host of “Survivor” and of his own talk show, “The Jeff Probst Show,” handed a check worth $7,000 donated by the National Mobility Equipment Dealers Association to the recipient of a college scholarship. With mobility awareness on the horizon, I thought it would be a good time to evaluate some medical-equipment makers.

JNJ’s role

When most people think of pharmaceutical company Johnson & Johnson (NYSE:JNJ), they probably think Tylenol. Many would be surprised to learn that the medical devices and diagnostics (MD&D) business accounted for more than 40% of J&J’s sales in 2012. It’s a $360 billion market, and Johnson & Johnson (NYSE:JNJ) competes in 35% of it, according to Gary Pruden, the pharmaceutical giant’s worldwide chairman of the global surgery group,
speaking at a recent conference.

The projected growth rate for the MD&D market in the five-year period leading up to 2016 is 3%-6%, noted Pruden. The modest projected growth rate is a result of heightened uncertainty surrounding the global economy, heath care and regulation. Nonetheless, JNJ is investing billions of dollars in research and development, which underscores its commitment and expectations for this space.

Emerging markets push

In the emerging markets, the medical devices segment is growing at a faster clip than the developed markets, and JNJ is seeking to capitalize on that opportunity. Since 2000, JNJ’s MD&D sales in China have grown from $40 million to $1 billion in 2012. Its recent $19.7 billion cash and stock acquisition of Synthes is helping to facilitate growth in emerging markets.

Johnson & Johnson (NYSE:JNJ) further divides its $27.4 billion MD&D segment into three categories — global surgery, global medical solutions and global orthopedics and neurology. Some 60% of sales in the global surgery group are generated outside of the U.S. and 20% come from the emerging markets, although the company hopes to increase emerging markets sales to 30%.

Earlier this month, Kalamazoo, Michigan-based medical technology company Stryker Corporation (NYSE:SYK) finished its acquisition of Trauson Holdings Company, a trauma equipment manufacturer in China that competes in the spine market. The addition is expected to help Stryker Corporation (NYSE:SYK) expand its presence in the emerging markets. The company expects to increase its sales from emerging markets from 6% to 7% as a result of the deal, according to a recent Cowen Group conference.

Months ago, Stryker Corporation (NYSE:SYK), which has had some struggles in its European business, appointed Kevin Lobo, who led the orthopedics unit, as chief executive officer. He beat out Curt Hartman, the CFO who also served as the interim CEO for much of 2012, for the job.  On March 1, the company announced an accelerated share repurchase program in which it will buy back $250 million of its stock. It is part of share buyback program that is already in place that was increased to $1 billion last year. Shares of Stryker Corporation (NYSE:SYK) are trading close to their 52-week high, and the stock is up 7% year-to-date.

Medical device maker Boston Scientific Corporation (NYSE:BSX) , which just entered the third-year of a corporate restructuring, similarly wants a bigger piece of the emerging markets pie. The company, which generated $7.2 billion in sales in 2012, considers itself “undersized” in the emerging markets, which currently generate 4% of total revenues, according to chief financial officer Jeffrey Capello, speaking at a recent RBC Capital Markets Conference. Boston Scientific Corporation (NYSE:BSX) hopes to more than double the size of sales deriving from the emerging markets over the next five years.

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