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Zacks Investment Research downgraded Natus Medical Inc. (BABY - Snapshot Report) to a Zacks Rank #3 (Hold) on Jul 10, 2013.

Why the Downgrade?

On Jul 8, Natus Medical reported preliminary revenues for the second quarter of 2013. The company expects revenues in the range of $81-$82 million, lower than the earlier outlook of $86-$90 million. The current Zacks Consensus Estimate is pegged at $85 million.

Following the downward revision of sales guidance, the stock tanked 5% on Tuesday, Jul 9, to close at $11.78. Further, the stock has declined 11.69% over the last 3 months.

According to Natus Medical, the lower revision was mainly due to the contagion of economic problems in the overseas market, especially Europe. Nonetheless, revenues from the U.S. market were in line with management’s expectations. The company will accordingly update guidance for the third quarter and full-year 2013 when it discloses second-quarter financial results.

Moreover, Natus Medical is not likely to beat earnings when it reports exhaustive results for the second quarter on Aug 1. That is because a stock needs to have both a positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank of #1, 2 or 3 for an earnings beat.

However, the stock has a negative Zacks ESP. The Most Accurate Estimate stands at $0.16 while the Zacks Consensus Estimate is $0.17. This comes to a difference of -5.88%.

Natus Medical carries a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, the Zacks Rank #3 when combined with a -5.88% ESP makes surprise prediction difficult.

Other Stocks to Consider

Among other stocks in the medical device industry, Cepheid (CPHD - Analyst Report), MAKO Surgical Corp. and Edwards Lifesciences Corp. (EW - Analyst Report) appear impressive. These stocks carry a favorable Zacks Rank #2 (Buy).

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