Morgan Stanley on Tuesday moved several European medical-technology stocks higher in its internal rankings, arguing that a slow improvement in demand combined with broadly lower sector multiples creates fresh opportunities for selective investors.
In the bank's latest coverage note, Demant was upgraded to Overweight and Sonova was raised to Equal-weight, with analysts pointing to improving fundamentals in the hearing-aids market after two straight years of below-trend volume growth. The bank also lifted Qiagen to Overweight, citing early signs of renewed life-sciences funding and the resolution of competitive concerns tied to its tuberculosis franchise. Fresenius remained Morgan Stanley's preferred pick in the sector, a position the bank reiterated.
At the same time, Morgan Stanley lowered its view on bioMerieux to Underweight, highlighting the potential earnings impact of a weaker flu season on that company's high-margin Molecular testing business.
Beyond individual stock moves, Morgan Stanley's sector outlook was largely unchanged. The bank projects European MedTech sales will expand at roughly a 5% compound annual rate through 2026-28, which it notes sits in line with the sector's 20-year average. That top-line trajectory is expected to be supported by stronger volumes in imaging and orthopaedics as well as demand recovery in hearing and life-sciences markets.
However, the firm warned that cost pressures could undercut those gains. Analysts called attention to Section 232 tariff risk and the prospect of persistently elevated input costs - including freight, energy, petrochemicals and memory chips - as potential headwinds to 2027 earnings. "The analysis suggests inflation could represent a ~2-4% headwind to 2027 operating profit, depending on the company and end market," analyst Aisyah Noor wrote in the note.
Noor also flagged a specific policy variable that could materially affect some names: the Nairobi protocol currently exempts multiple companies from certain U.S. duties, including Coloplast, Demant, Convatec and Sonova. She warned that an adverse update to that protocol could have a negative effect if the exemptions are overturned in the upcoming Section 232 decision.
On company preferences, Noor continued to favour Fresenius SE for its combination of defensive growth characteristics and an appealing valuation. Morgan Stanley highlighted Fresenius's ongoing portfolio simplification and what the bank described as a self-help earnings story that the market has not fully priced in.
By contrast, the analyst team expressed caution on Coloplast, where they see a risk to earnings into 2026/27 stemming from guidance downgrades and mounting competitive pressure.
When it comes to stock selection across the sector, Morgan Stanley said it prefers names that combine free cash-flow resilience with positive earnings momentum. The bank noted that the sector's notable underperformance year-to-date has left valuations broadly discounted relative to long-term averages, creating selective opportunities. "Signs of growth inflection coupled with sector underperformance YTD provides opportunities for stockpicking," Noor wrote.
Contextual note: The bank's upgrades and downgrades reflect an attempt to balance improving demand signals against persistent margin pressure from higher costs and tariff uncertainty. Specific exposures highlighted in the note include hearing aids, life sciences tools, imaging and orthopaedics, and molecular diagnostics.