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Key MedTech Trends to Influence Q3 Earnings: BDX, ABC, TFX

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Q3 earnings season has taken center stage, with 272 S&P 500 members, which account for 64.2% of the index’s total market capitalization, having reported their numbers. Per the latest Earnings Preview, total earnings for these companies are up 8.7% from the same period last year on 6.7% higher revenues, with 75.7% beating earnings and 66.2% surpassing revenue estimates.

With 134 S&P 500 members lined up to release their quarterly results this week, we are decidedly bullish on the equity market, which is gradually demonstrating an improvement sequentially. Needless to say, the ongoing week is a crucial one for this season as by the end of it we will have results from more than 80% of the S&P 500 bigwigs.

Medical, one of the broader sectors among the 16 Zacks sectors, is expected to put up an impressive show this quarter. For the third quarter, the expected earnings growth rate for the sector is 5.2% on 4.8% revenue growth. In comparison, the reported earnings growth rate from the second-quarter 2017 was quite impressive at 7% on 4.4% revenue growth.

Let us take a look at the major factors that are likely to influence the earnings results of MedTech companies within the broader Medical universe.

Factors Influencing MedTech in Q3

Hurricanes Wreak Havoc

Various reports suggest that hurricanes at the end of the third quarter are likely to mar revenues and earnings of several MedTech companies, primarily in Florida, Texas and Puerto Rico. MedTech major Ecolab (ECL - Free Report) expects the impact of the hurricanes on full-year sales and costs to be approximately 8 cents per share. In fact, Medtronic (MDT - Free Report) acknowledged the impact of Hurricane Maria on its quarterly metrics. The company expects an almost $250 million impact on revenues and earnings.

Apart from the natural factors, a rise in unemployment (though short lived) and decline in consumer income, coupled with increasing aggregate spending, are likely to deal a heavy blow to MedTech numbers.

Political Conundrum

While the overall investment world has been gaining prominence, investors in the MedTech industry are unfortunately seeing a reverse trend. Stocks tumbled and things got riskier when the Graham-Cassidy bill to retract Obamacare failed to gain support again. And, President Trump’s latest executive order has already become a serious threat to the healthcare community at large.

In this regard, let’s not forget the tax-reform pledges that Trump has taken to abolish the infamous 2.3% medical device sales tax. Although investor confidence trends upwards with the hope of ‘enactment of new tax reforms,' we believe the market has not got a whiff of it due to the lack of favorable developments on the regulatory front.

Favorable Consumer Behavior

Despite the political issues in the healthcare space, the change in consumer demand and market dynamics led to a dramatic transformation in the entire U.S. healthcare system over the last couple of years. This is evident from the growing prevalence of minimally-invasive surgeries, rising demand for liquid biopsy tests, use of IT for ensuring quick and improved patient care along with the shift of the payment system to a value-based model.

Let’s take a look at the major Medical Product stocks slated to release their quarterly reports on Nov 2:

Becton, Dickinson and Company (BDX - Free Report)

Becton, Dickinson is scheduled to report fourth-quarter fiscal 2017 results before the opening bell.

For fiscal 2017, revenues are anticipated to increase 4.5% to 5.0%. Looking at quarterly estimates, the Zacks Consensus Estimate for the BD Medical segment is at $2.105 billion for the fourth quarter, signifying sequential growth of 2.8%. Meanwhile, the Zacks Consensus Estimate for the Medical Surgical Systems is pegged at $908 million, up 4.4% from last quarter's reported number.

The company’s innovative product pipeline is a key catalyst in our view. A plethora of regulatory approvals in the United States and international markets are helping the company to rapidly expand its product portfolio. (read more: Is Becton, Dickinson Poised for a Beat in Q4 Earnings?).

Buoyed by the solid prospects, our quantitative model shows a beat for the company, given the combination of a Zacks Rank #2 (Buy) and an Earnings ESP of +0.11%.

AmerisourceBergen Corporation

AmerisourceBergen is scheduled to report fourth-quarter fiscal 2017 results before the market opens.

Its quarterly results are expected to show steady growth in the pharmaceutical distribution segment, a significant contributor to the company’s revenues. The Zacks Consensus Estimate for the segment stands at $38.34 billion. This reflects an improvement of almost 6.5% from the year-ago quarter.

On the flipside, although generic inflation has been nominal, the rate of deflation is rising gradually. Furthermore, an anticipated shift in product mix toward lower-margin and higher-priced specialty and branded drugs will affect the company’s bottom line (read more: AmerisourceBergen Q4 Earnings: Will it Disappoint?).

Meanwhile, the Zacks Consensus Estimate for AmerisourceBergen’s earnings stands at $1.32 per share, up 1.8% year-over-year. The consensus estimate for net revenues is pegged at $40.1 billion, signifying growth of 6.7% on a year-over-year basis.

Our proven model does not predict an earnings beat for the company this season, thanks to its Earnings ESP of -0.54% and Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Teleflex Incorporated (TFX - Free Report)

Teleflex is expected to announce third-quarter 2017 results before the market opens.

We believe the company’s medical surgical instruments and devices segment will drive the top line this season. The Zacks Consensus Estimate for the segment’s revenues stands at $47.4 million, up 6% from the year-ago reported number. The company’s strong focus on High Flow Nasal Cannula Therapy (HFNCT) is likely to lend it a competitive edge in the niche space.

Solid growth in the preloaded anti-microbial and anti-thrombogenic VPS PICCs platform is likely to strengthen the vascular platform. In the surgical segment, new products like EFx and Ae05 products fortify the company’s foothold. Finally, the company’s flagship LMA unique product strengthens its Anasthesia product line.

Our quantitative model predicts an earnings beat for Teleflex in the third quarter. The stock currently has a Zacks Rank #3 and an Earnings ESP of +0.71%. Notably, the Zacks Consensus Estimate for revenues is at $524.2 million for the third quarter, up 15% on a year-over-year basis. The consensus estimate for earnings is pegged at $2.02, signifying growth of 12% year-over-year.

 

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