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We expect healthcare services provider Cardinal Health, Inc. (CAH - Analyst Report) to beat expectations when it reports third-quarter fiscal 2014 financial results on May 1.

Why a Likely Positive Surprise?

Our proven model shows that Cardinal Health is likely to beat earnings because it has the right combination of two key ingredients.

Zacks ESP: Expected Surprise Prediction or Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. Cardinal Health has a Zacks ESP of +1.00%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.

Zacks Rank: Cardinal Health carries a Zacks Rank #2 (Buy). Note that stocks with Zacks Ranks #1, 2 and 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.  

The combination of Cardinal Health's Zacks Rank #2 (Buy) and +1.00% ESP makes us confident of a possible positive earnings beat on May 1. Cardinal Health delivered positive surprises in all of its last 4 quarters, with an average beat of 16.69%

What is Driving the Better-than-Expected Earnings?

In its second-quarter fiscal 2014, Cardinal Health reported adjusted earnings of 90 cents per share, beating the Zacks Consensus Estimate by 8.4%. However, earnings in the quarter dropped 3.2% from the year-ago quarter equivalent.

In the last reported quarter, Cardinal Health delivered a solid operating performance, with a 10.3% hike in adjusted operating earnings, which amounted to $579 million in the quarter. The company’s formation of a generic sourcing joint venture with CVS Caremark reflects the fact that Cardinal Health's businesses are constantly adapting a dynamic health care environment, thereby strengthening the long-term growth prospect of the company’s Pharmaceutical segment.

Cardinal Health's Pharmaceutical segment delivered impressive profit growth of 9.3%, despite a revenue shortfall of 14.5%, driven by strong performance from both generic programs and branded agreements, including the impact of price inflation. The company's other segment Medical also delivered solid earnings growth of 39.4%, owing to growth in Home Health resulting from the AssuraMed acquisition.

Based on its solid performance in the past quarter, Cardinal Health increased 2014 adjusted earnings guidance to $3.75–$3.85 per share from the prior range of $3.62 to $3.72 per share, reflecting a year-over-year rise of approximately 0.5-3.2%.

Other Stocks to Consider

Stryker is not the only firm looking up this earnings season. We also see likely earnings beats coming from these 3 industry peers:

Myriad Genetics Inc. (MYGN - Analyst Report), earnings ESP of +10.87% and a Zacks Rank #1 (Strong Buy).

Affymetrix, Inc. (AFFX - Analyst Report), earnings ESP of +50.00% and a Zacks Rank #2 (Buy).

Edwards Lifesciences Corp. (EW - Analyst Report), earnings ESP of +1.47% and a Zacks Rank #2 (Buy).

Read the Full Research Report on CAH
Read the Full Research Report on EW
Read the Full Research Report on AFFX
Read the Full Research Report on MYGN


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