Medical Devices: our 4 top-quality actors compared
2026-06-23 · By Lubin Danilo, founder of Lubin Investment
In the Medical Devices sector, 4 companies earn a perfect score in our screener: STERIS (STE), Stryker (SYK), DexCom (DXCM), and ResMed (RMD). STE, DXCM, and RMD are slightly below their entry targets, while SYK trades above. All generate recurring FCF through consumables or software subscriptions.
Why the Medical Devices sector produces recurring FCF
The medical device sector is structurally favorable to generating high FCF for one central reason: the "razor-blade" model. Medical equipment is often sold once (or leased to a hospital), but the associated consumables are purchased thousands of times over the equipment's lifespan. At DexCom, the CGM sensor is replaced every 10 days. At STERIS, sterilization products are consumed at each cycle. At ResMed, CPAP masks are replaced regularly and software subscriptions are recurring. This model produces predictable revenues with high FCF margins, often above 20%.
Comparison table of the 4 quality actors
| Ticker | Company | Price | FCF/share | P/FCF | Target | Discount | Score |
|---|---|---|---|---|---|---|---|
| STE | STERIS | $200.40 | $9.24 | 21.7x | $205.68 | +2.6% | 10/10 |
| SYK | Stryker | $304.69 | N/A | 27.2x | $261.01 | -14.3% | 10/10* |
| DXCM | DexCom | $69.07 | $3.20 | 21.6x | $71.33 | +3.3% | 10/10 |
| RMD | ResMed | $188.45 | $11.29 | 16.7x | $195.55 | +3.8% | 10/10 |
* SYK earns 10/10 on quality criteria but fails the valuation criterion: the price ($304.69) is 14.3% above our target ($261.01). SYK therefore falls outside our buy zone.
Individual analysis of the 4 actors
- STE (STERIS): hospital sterilization and decontamination services. Multi-year contracts with hospitals and labs. Consumables model (sterilization chemicals). At 2.6% below our target, buy zone.
- SYK (Stryker): leader in orthopedic implants (hips, knees) and neurology. Impeccable quality but valuation above our target. Watch for a price pullback for entry.
- DXCM (DexCom): continuous glucose monitors (CGM) for diabetics. Each sensor lasts 10 days = automatic recurring revenue. Growth driven by global diabetes prevalence expansion. At 3.3% below our target.
- RMD (ResMed): CPAP masks and devices for sleep apnea + AirView telemedicine software. Double recurrence: physical consumables + SaaS subscriptions. At 3.8% below our target.
Which Medical Device to prioritize per our methodology?
The three companies in the buy zone (STE, DXCM, RMD) all have a P/FCF between 16.7x and 21.7x. RMD offers the lowest P/FCF (16.7x) and the largest discount (+3.8%), giving it a slight preference on valuation alone. STE is almost exactly at the target (+2.6%). DXCM is between the two (+3.3%). SYK remains on watchlist until its price converges toward its target.
FAQ
What is a CGM sensor and why is DexCom recurring?
A CGM (Continuous Glucose Monitor) sensor measures blood glucose continuously without finger pricks. DexCom sensors are worn on the skin and last 10 to 14 days, then must be replaced. A diabetic therefore uses 25 to 36 sensors per year. This automatic renewal creates very strong recurrence, similar to a subscription, with predictable and growing revenues tracking diabetes prevalence.
Why is Stryker above your target despite a perfect score?
Stryker is an exceptional company by quality: regular FCF growth, leadership in orthopedics and neurology, high margins. But our methodology includes a valuation criterion. At P/FCF 27.2x vs our implied target of ~18.5x, the market is already paying a significant premium. One can admire Stryker without being a buyer at the current price.
How does STERIS generate its revenue?
STERIS is the leader in hospital sterilization: it provides equipment (steam sterilizers, ethylene oxide sterilizers) and associated consumables (chemicals, sterile packaging) to hospitals, clinics, and pharmaceutical laboratories. This model creates operational dependency: a hospital cannot operate without sterilization. Contracts are often multi-year.
Isn't ResMed threatened by GLP-1 obesity drugs?
This is a real but nuanced concern. GLP-1 drugs (Ozempic, Wegovy) treat obesity, which is the primary cause of sleep apnea. If many obese patients cure their apnea through weight loss, CPAP demand could decline long-term. ResMed has integrated this risk into its strategy by developing its software segment (AirView, telemedicine) to reduce hardware dependency.
HAE (Haemonetics) is also in Medical Devices. Why isn't it in this article?
Haemonetics (HAE) has already been analyzed in a standalone article on our blog. It is among the Medical Devices earning the top score, but we preferred to dedicate an individual analysis given the richness of its model (blood management technologies, plasma, platelets).
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About the author
Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I have analyzed stocks through their fundamentals for several years and invest my own money with this method. I codified it into a tool that judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).