Medical Device Industry: Swept Up in the Tariffs, Diabetes Device Makers Bear the Brunt
Keeping our fair value estimates unchanged on medical devices stocks.
Despite intensive medtech industry lobbying to secure a carve-out from the Trump administration’s expansive tariffs on all countries, medical devices have been swept up in the tariff net.
Why it matters: Inclusion of medical devices stands in stark contrast to the historical pattern of strategic exemptions of lifesaving and life-sustaining devices from tariffs.
- It seems that the diabetes device makers are bearing the brunt of the new tariffs, including Dexcom DXCM, Insulet PODD, and Tandem Diabetes TNDM.
- On the other hand, the larger cardiac and orthopedic device makers, such as Boston Scientific BSX, Edwards Lifesciences EW, and Zimmer Biomet ZBH, have seen little movement in shares. We expect these firms to shift manufacturing around to minimize the impact of the tariffs.
The bottom line: While these tariffs are a shock to the industry, and we anticipate margin pressure in the near term, we see little to fundamentally change our view of the moatiness of this industry and the moats of individual device makers under coverage.
- Of all the firms, we think Tandem Diabetes may be the most vulnerable because of its reliance on components and manufacturing outside the US, and its relatively narrow bandwidth to shift most manufacturing to the US.
- The diabetes device makers could also see greater reverberations from the tariffs because there is considerable competition from European firms, including Roche RHHVF and Ypsomed YPHDF. Any reciprocal tariffs by Europe would only further hurt these US-based competitors.
Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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