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Will Product Revenues Drive Masimo's (MASI) Q3 Earnings?

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Masimo Corporation’s (MASI - Free Report) third-quarter 2018 earnings are scheduled to release on Oct 31, after market close.

Product revenues are likely to drive quarterly results and a raised guidance for 2018 is another encouraging factor.

Q2 Results at a Glance

In the last reported quarter, Masimo posted adjusted earnings of 73 cents per share, which beat the Zacks Consensus Estimate by a penny. Earnings surged 32.7% on a year-over-year basis.

Revenues improved 10% year over year to $211.6 million and surpassed the Zacks Consensus Estimate of $208 million.

The company has a positive average earnings surprise of 14.7% for the trailing four quarters.

Masimo reports through two major segments — Product sales and Royalty & Other revenues.

Which Way Are Estimates Treading?

For the quarter to be reported, the Zacks Consensus Estimate for Masimo’s earnings is pegged at 68 cents, showing a year-over-year decline of 2.9%. The same for revenues stands at $206.3 million, reflecting an increase of 6.5% year over year.

Masimo Corporation Price and EPS Surprise

 

Masimo Corporation Price and EPS Surprise | Masimo Corporation Quote

Product Revenues Likely to Drive Q3

Masimo’s Product revenues have been consistently driving its top line. The business includes Masimo’s flagship Signal Extraction Technology (SET) Pulse Oximetry which has been much in demand of later. The company’s rainbow Pulse CO-Oximetry measures blood constituents and SET measurements of oxygen saturation.

In the last reported quarter, the segment contributed 95.5% to net sales. Sales in the segment grossed $202 million, up 12.4% from the year-ago quarter and 11.2% at constant currency (cc).

It is encouraging to note that for the third quarter, the Zacks Consensus Estimate for the segment’s revenues is pegged at $198 million, up 9.4% on a year-over-year basis. In fact, for 2018, the company expects Product revenues to be $822 million, up from the previously projected $818 million.

Other Factors at Play

Raised Guidance

For 2018, Masimo expects revenues of $850 million, up from the previous guidance of $846 million. Notably, this reflects growth of 10.8% at cc. The Zacks Consensus Estimate stands at $850.2 million, slightly above the projected figure.

Adjusted earnings per share are expected at $2.90, up from the earlier estimated figure of $2.88. The Zacks Consensus Estimate for the same is pegged at $2.90, in line with the guided figure.

Streak of Recent Positive Study Results

In August 2018, Masimo announced the findings of a study which proved the ability of Masimo ORi (Oxygen Reserve Index) to show trends in oxygenation in the moderate hyperoxic region (partial pressure of oxygen in arterial blood [PaO2] in the range of 100 to 200 mmHg).

Furthermore, Masimo announced that its SET Measure-through Motion and Low Perfusion pulse oximetry might be a useful initial screening method to identify children with Down Syndrome (DS) who are at a high risk of obstructive sleep apnea (OSA).

We expect these developments to favor the company this earnings season.

What Does Our Model Say?

Per our proven model, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to deliver a positive earnings surprise in the quarter. This is precisely the case here.

Earnings ESP: Masimo has an Earnings ESP of +0.98%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Masimo carries a Zacks Rank #2.

Please note that we caution against stocks with a Zacks Rank #4 (Sell) or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revision.

Other Stocks Worth a Look

Here are a few other medical stocks worth considering as they also have the right combination of elements to post an earnings beat this quarter.

PerkinElmer has an Earnings ESP of +1.45% and a Zacks Rank #3.

Becton, Dickinson and Company (BDX - Free Report) has an Earnings ESP of +0.43% and a Zacks Rank #3.

Baxter International (BAX - Free Report) has an Earnings ESP of +0.90% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

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