J.P. Morgan Sees European Medtech Recovery Led by Hearing-Aid Demand

The European medical technology sector is showing signs of a rebound, but J.P. Morgan analysts suggest the recovery is being driven by pockets of demand in hearing aids rather than a broad-based improvement in earnings. The sector is attempting to claw back from a historically difficult first half of the year.

According to an Investing.com report, the European Medtech index suffered a 15% decline in the first quarter, followed by a 7% drop in the second quarter. These two consecutive periods rank among the five worst quarters for the sector in the past 20 years.

Top Picks and Catalyst Watches

While the sector faces headwinds, J.P. Morgan analysts have identified specific winners and potential risks for investors. Fresenius SE has been named the firm’s top pick in the space, earning an 'overweight' rating. Analysts cite the company's projected double-digit-plus earnings-per-share growth as the primary driver for this bullish stance.

Conversely, other firms face significant scrutiny ahead of upcoming milestones:

• Ambu: Placed on 'Negative Catalyst Watch' ahead of its November 5 fourth-quarter results. Analysts expressed skepticism regarding the company's ability to achieve 230 basis points of margin expansion.
• Elekta: Placed on 'Negative Catalyst Watch' ahead of the American Society for Radiation Oncology meeting, scheduled for September 26-30. The firm faces mounting competitive pressure from a new product launch by Varian, a subsidiary of Siemens Healthineers.

What Is at Stake for Investors

The divergence between companies like Fresenius and those under watch highlights the selective nature of the current recovery. For the broader industry, the reliance on hearing-aid demand suggests that while consumer-facing medical segments are stabilizing, high-end capital equipment and surgical supply firms remain under pressure from competitive launches and margin concerns.

As the sector moves into the final quarter of the year, the ability of companies to meet ambitious margin targets will be the primary test for whether the recent recovery can broaden beyond specific product categories.