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We expect Cardinal Health (CAH - Analyst Report) to beat expectations when it reports fiscal second quarter 2013 results on Feb 5. 

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.

Positive Zacks ESP: Earnings Expected Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method), which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is at +1.2%. This is a meaningful and leading indicator of a likely positive earnings surprise for shares.

Zacks Rank #3 (Hold): Note that stocks with Zacks Ranks of #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 #3 (Hold) and Earnings ESP of +1.2% makes us confident of a positive earnings beat this coming announcement.

What is Driving the Better than Expected Earnings?

The company stands to gain from the gradual shift in mix from bulk to the higher-margin non-bulk sector of the Pharmaceutical segment. It is also riding the generic wave. Overall, Cardinal benefits from a spate of tuck-in acquisitions and capital deployment strategies. The positive trend is seen in the trailing four-quarter average surprise of 4.3%.

Other Stocks to Consider

Cardinal Health is not the only stock looking up this earnings season. We also see likely earnings beats coming from these three players.

ResMed (RMD - Analyst Report) has earnings ESP of +3.6% and Zacks Rank #1 (Strong Buy).

Cyberonics(CYBX - Analyst Report) has earnings ESP of +2.6% and Zacks Rank #1 (Strong Buy).

Becton, Dickinson and Company (BDX - Analyst Report) has earnings ESP of +3.3% and Zacks Rank #2 (Buy).

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