MS upgrades Dexcom, Bausch and Lomb amid rising hospital budgets

Investing.com -- Morgan Stanley expects the MedTech industry to enter 2026 on stronger footing, supported by new product cycles, improving margins and higher capital spending by hospitals.

Volatility in the sector is likely to persist after a choppy 2025, but valuations sit near multi-year troughs relative to the S&P 500.

The bank upgraded Dexcom to overweight from equal weight, saying the company is turning a corner operationally while trading at depressed valuation levels. It expects the rollout of the G7 15 day sensor to lift margins in 2026 and cited potential catalysts early next year including updates at Dexcom’s investor day and progress on CMS non insulin coverage.

Bausch and Lomb was also raised to overweight on what the bank described as the strongest pipeline in ophthalmology, with several disruptive products supporting growth in the longer term and efficiency measures helping margins over the next two to three years.

Analysts said organic growth across the industry should track near 6 to 7% next year, driven by launches in areas including diabetes devices, leadless systems and structural heart treatments. Margins are expected to strengthen as costs and pricing settle and as mix shifts toward newer products. The bank’s latest survey of US hospital executives points to a 4.1% rise in capital spending in 2026, in line with 2025, with greater interest in patient monitoring equipment, infusion pumps and operating room upgrades.

The survey also showed continued demand for soft tissue robotics, with Intuitive Surgical still leading and growing interest in Medtronic’s Hugo system. Stryker’s Mako platform gained share in orthopedic robotics. Hospitals were more cautious on some purchases given uncertainty around OBBBA, though expectations for ambulatory surgery center investment improved.

Morgan Stanley said tariff and reimbursement risks remain headwinds, noting that 34% of hospitals cited reimbursement as the top challenge for next year, up from 25% in the prior survey.

Morgan Stanley downgraded Inspire Medical Systems to equal weight, citing slower growth, limited visibility into its core market and rising competition in 2026. It said recent reimbursement gains are already reflected in the share price.