2 Standout MedTech Stocks to Buy Now, According to Piper Sandler

Piper Sandler recommends Overweight on DexCom with a $75 price target (~6x EV/FY2026 sales), noting Q4-2025 revenue of $1.26B that beat estimates and assumptions of ~$758M net cash and ~391M fully diluted shares. The firm also maintains Overweight on STERIS with a $300 target (~25x NTM+1 EPS of $11.98); STERIS reported fiscal Q3-2026 revenue ~1% above consensus, matched EPS, and declared a $0.63 quarterly dividend. Piper Sandler favors large-cap MedTech names with strong balance sheets, robust free cash flow and low leverage, but warns the sector's turnaround may be several quarters away amid regulatory, reimbursement, procedure-volume and supply-chain/inflation risks.

Analysis

Large-cap MedTech names with durable free cash flow (DexCom, STERIS) are being priced as defensive cyclical plays rather than pure growth stories; that reclassification benefits balance-sheet-heavy suppliers (capital equipment lessors, distributors with low leverage) while compressing multiples for asset-light digital health peers. Second-order winners include sensor-component suppliers and contract manufacturers whose revenue is sticky even if end-market procedure volumes wobble; conversely, mid-cap vendors exposed to single-procurement hospital systems or concentrated OEM customers face outsized downside in a procurement pullback.

Key near-term risks are macro-driven elective-volume variability over the next 2–6 quarters and discrete regulatory/reimbursement moves over 12–24 months that can reset pricing across recurring-revenue models. Supply-chain micro-risks (sensor substrates, ASIC lead times) can create lumpy quarter-to-quarter gross-margin swings; a sustained 8–12% decline in elective procedures would plausibly shave mid-teens percentage points off some capital-equipment vendors’ EBIT in two quarters, forcing inventory and pricing actions.

The consensus tilt to large-caps underweights two asymmetries: (1) digital/data partnerships can re-rate a device maker if they unlock incremental margin and lifetime revenue per user (20–30%+ upside on SaaS-like metrics within 18–36 months), and (2) regulatory/privacy shock events can erase 15–30% of market value inside weeks. Positioning should therefore be catalyst-aware and convex: own cash-generative large-caps but hedge regulatory and procedure-cycle tails explicitly.

Key Decisions for Investors

• Buy DXCM asymmetric exposure: initiate a 9–12 month call spread (buy LEAP call, sell higher-strike call) sized so maximum premium = 2–3% of portfolio. R/R: target 40–80% upside if CGM adoption + data monetization accelerate; max loss = premium paid if regulatory setbacks occur.
• Overweight STE (small-to-moderate position, 3–6% portfolio) with a 6–12 month horizon to capture dividend and capex resilience. Hedge tail risk by buying a 6–9 month 7–10% OTM put costing ≤1% of position value to limit downside from a sudden elective-volume slump.
• Pair trade to express procedure-cycle divergence: long STE / short MDT (or another broad-cap surgical-equipment cyclicality exposure) 1:1 notional for 3–6 months. R/R: pays off if hospital capex holds while elective volumes soften; stop-loss if spread narrows >15%.
• Event hedge for DXCM regulatory/data risk: buy 3–6 month 5–8% OTM puts around key regulatory/reimbursement calendar dates (cap cost ~0.5–1% of position). This protects against 15–30% downside from an adverse ruling while keeping upside uncapped on the long spread.