Medical device companies are set to endure another sluggish earnings season before stepping into 2027 with the strongest growth outlook in more than two years, following a difficult stretch marked by policy uncertainty, cyberattacks, and product recalls.
According to industry research data, sector-wide third-quarter earnings are expected to grow 4.8% year over year, a slowdown from the prior quarter and trailing the expected gains for the benchmark U.S. equity index. By the first quarter of next year, that growth rate is projected to accelerate to 13%, marking the sector's strongest performance since late 2024.
Despite the modest third-quarter expectations, Citigroup analyst Joanne Wunsch and colleagues remain optimistic about "pockets of growth" emerging next year, while Barclays' Christopher Pasquale expects revenue growth to stabilize.
The S&P 500 Health Care Equipment and Supplies Index, which includes pacemaker maker Medtronic (MDT.US), hip replacement device maker Stryker (SYK.US), and surgical robotics company Intuitive Surgical (ISRG.US), has fallen more than 20% year to date. Over the same period, the broader market index has risen 13%.
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The medical device sector is relatively less exposed to tariffs and energy shocks, but uncertainty over potential changes to the Affordable Care Act and Medicaid under the "One Big Beautiful Bill" has been weighing on market sentiment.
"The sector's positioning as a 'safe haven' has been weakened," said industry research analyst Matt Henriksen.
Evercore ISI analyst Vijay Kumar, referring to hospital spending plans, said: "There is indeed a question — whether the new projects or expensive new equipment we planned to purchase should be paused, or whether some things should be pushed into next year."
JPMorgan analyst Robert Marcus said that few product launches, biopharma drawing capital away from medical devices, and an overall rotation of funds toward AI-related stocks have also pressured the sector.
Idiosyncratic challenges such as cyberattacks at Boston Scientific (BSX.US) and Stryker, and a product recall at Baxter International (BAX.US), further dampened investor confidence.
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"The narrative for this sector will be hard to turn around in 2026, but we are bullish on the setup for 2027," RBC Capital Markets analyst Kendall Ou wrote in a report.
Marcus said a decisive Democratic victory in the midterm elections could boost medical device stocks, though it would not affect healthcare policy over the next two years. "This is not yet reflected in valuations and could provide a nice upside."
Citigroup's Wunsch said Zimmer Biomet (ZBH.US) is in the midst of a new product cycle, while Edwards Lifesciences (EW.US) is about to see multiple trial data readouts.
Marcus said Boston Scientific, while "still in the penalty box," could find a way out with new product launches and data catalysts in 2027.
"Long-term innovation and solid procedure volumes underpin broadly good fundamentals," said industry research's Henriksen, pointing to resilience beneath near-term pressures.
Evercore's Kumar said pulsed field ablation — a technique using high-intensity electrical pulses to treat heart rhythm disorders — continuous glucose monitors for diabetes, and the ongoing advancement of surgical robotics are among several key developments.
Overall, Marcus said, as medical device companies reset expectations for 2027 and work to win back investors, the third-quarter earnings season can be viewed as an "important clearing event."