Dec 2008 Edition: FX and Macro Spill-Over
Concerns Take A Bite Out of Performance
■ November was a rough month for MedTech. In November, the S&P 500
Healthcare Equipment & Supply index was down 18.5% versus and the S&P
500 Healthcare sector decline of 7.2% and the S&P 500’s decline of 7.5%.
We attribute the lackluster performance to the continued strengthening of
the US dollar against other major currencies and more signs that that the
macro environment could have an adverse impact on earnings prospects.
■ What’s Ahead in December. Edwards Lifesciences (Dec 11) and Bard (Dec
18) will host investor days in New York and provide 2009 guidance.
■ We expect FX and macro concerns to continue to weigh on the group.
We expect all companies to talk more cautiously on 2009 due to FX rates
and uncertainty regarding the spill-over effects of macro conditions (e.g.
elective procedure volumes, capex spending, and pricing/mix pressures).
Some companies (COV, BDX, STJ) already recalibrated 2009 expectations;
others are likely to follow. We believe SYK (Neutral) could guide below the
current Consensus 2009 estimate as the company has several headwinds
(FX, elective procedure trends, hospital capex trends, spending to resolve
the warning letters). BAX (Neutral) may also talk more conservatively on its
2009 outlook owing to its FX exposure to Latin American currencies.
■ Views on the stocks. EW remains rated Outperform for its transcatheter
valve opportunity. While COV (Outperform) is exposed to FX rates, we
believe the exposure is already priced in and the stock has an attractive
valuation. Device stocks are starting to look more compelling from a
valuation basis relative to the supply stocks. That said many stocks look
attractive on a valuation basis across the broader market. Given our view
that the 4Q08 results and 2009 guidance may disappoint, we’d remain
largely on the sidelines, despites the valuation, until this overhang passes.

Table of contents
Changes to Target Prices and Earnings Estimates 3
Coverage Universe At A Glance 4
Our Thoughts On The Group 5
Events Calendar 6
Performance Review 7
S&P 500 Sector Performance 8
S&P 500 Healthcare 9
MedTech Has Been A Place To Hide This Year Until Recently 11
MedTech Individual Stock Performance 14
Valuation Trends 18
Historical Valuation Ranges 19
MedTech is “Pricey” Compared to Other Healthcare Sectors 21
FX: From Tailwind to Headwind 22
FX Exposure Across Our Universe 27
Economic/Credit Impact 32
Political Environment 38
Company Profiles 40
Bard (BCR-Neutral) 41
Baxter (BAX-Neutral) 51
Becton Dickinson (BDX-Neutral) 66
Boston Scientific (BSX-Neutral) 80
Covidien (COV-Outperform) 91
Edwards Lifesciences (EW-Outperform) 104
Medtronic (MDT-Neutral) 113
Nanosphere (NSPH-Outperform) 127
St. Jude Medical (STJ-Neutral) 132
Stryker (SYK-Neutral) 145
Zimmer Holdings (ZMH-Neutral) 154
Major Product Categories 167
Cardiac Rhythm Management (CRM) 168
Coronary Stents 174
Heart Valves 181
Orthopedics 187
Blood Plasma Market 190
Glossary 191