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2 MedTech Stocks for Earnings Beats

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2 MedTech Stocks for Earnings Beats  
For the past few years, large-cap medical device makers have been witnessing low-single-digit growth rate in the developed and mature markets like the U.S., Europe and Japan. To reverse this trend, they are now turning their focus to high-growth emerging regions, specifically in economies like Brazil, Russia, India and China (the BRICs).
Moreover, in their ongoing hunt for the next set of emerging markets, these stalwarts are also targeting Turkey, Mexico, Malaysia, Indonesia, the Philippines, South Africa, South Korea and the Czech Republic – countries that are fast coming up in the medical devices space. The growing uptake of medical devices in these emerging economies is largely due to increasing medical awareness and economic prosperity. Further, an aging population, increased government focus on healthcare infrastructure and expansion of medical insurance coverage make these markets attractive for global medical device players. 
According to researchers, the lifestyle of Asian people is undergoing a dynamic change due to a shift in preference toward the West. As a result, Asians are now more prone to being affected by diseases prevalent in the western countries.
Among the BRIC member countries, Brazil is currently the largest healthcare market in Latin America, covering almost one-fourth of the population. On the other hand, though India is one of the largest and rapidly growing healthcare markets in the world, it is considered as having the least developed healthcare infrastructure coupled with relatively low healthcare spending. In a bid to reverse this trend, in the 12th Five-Year Plan (2012-2017), the Indian government intended to spend 2.5% of its GDP (up from 1.2% earlier) on health care and raise it to at least 3% by 2022.
According to a McKinsey & Co. article, healthcare spending in China is expected to grow to $1 trillion by 2020 from $156 billion in 2006. China is also taking steps to set up adequate health insurance coverage that should help boost the healthcare sector. It is expected that within the next decade, China will be the biggest healthcare market in the world, even outpacing the U.S.
Furthermore, despite several political disturbances, Russia is expected to draw bigger players for investment in health care. With its $6 billion market opportunity and the 2020 strategic and economic initiative that emphasizes on science and technology development, economic development, innovations and requisite action plans, Russia offers an attractive bid for healthcare companies.
How Significant Emerging Markets Were in Q1?  
Stalwarts in the healthcare sector continued expanding their presence in BRIC and other emerging markets in the quarter. Many of these companies also seem eager to establish their manufacturing facilities abroad.
Here are a few instances on that count:
Abbott Laboratories (ABT) continues to lead the trend with about 40% of sales coming in from the emerging markets in the first quarter. The company expects this contribution to increase to 50% by 2015.
Johnson & Johnson (JNJ) showed 13% growth in the BRIC nations during the quarter and is currently working to increase its presence in these regions. The company has already set up manufacturing and R&D centers in Brazil, China and India and expects to expand further in China on the back of the Synthes acquisition.
Becton, Dickinson and Company (BDX), with about 58% of revenues from international markets, witnessed double-digit sales growth in the emerging geographies during the quarter with China growing over 25% at constant exchange rate (CER). 
Against the backdrop of flattening or declining sales growth in developed markets, Boston Scientific Corporation (BSX) achieved 8% international growth in the quarter on the back of 22% growth in emerging markets, which represented 9% of total company sales.
Stryker Corporation (SYK), with 7% of its sales coming from emerging markets in the quarter, is expected to grow market share further in key geographies like China and India. Orthopedic major, Smith & Nephew plc (SNN), meanwhile continued to gain double-digit sales growth in emerging markets.
In the same vein, Thermo Fisher Scientific, Inc. (TMO) is also expanding its presence in emerging markets. It expects to garner 25% of total revenues from the high-growth Asia-Pacific region and emerging markets by 2016, up from 19% in 2011. According to the company, China with its rapid industrialization, increasing focus on healthcare, new BioPharma R&D centers and government-sponsored research, holds robust growth potential.
How to Choose the Best?
Betting on stocks that are expected to beat earnings in their upcoming release is a profitable strategy, as earnings beat generally translates to stock price appreciation. 
With the existence of a number of industry players, finding the right stocks that have the potential to beat earnings estimates could pose a difficult task, but our proprietary methodology makes it fairly simple for you. You could narrow down the list of choices by looking at stocks that have the combination of a favorable Zacks Rank – Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) – and a positive Earnings ESP.
Earnings ESP is our proprietary methodology for determining which stocks have the best chance to surprise with their next earnings announcement. It shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.
Our research shows that for stocks with this combination, the chance of positive earnings surprise is as high as 70%.
2 Stocks Set to Beat Earnings 
Here are two medical stocks that have the right combination of elements to post an earnings beat in the upcoming announcement:
Medtronic, Inc. (MDT - Free Report) : Headquartered in Minneapolis, MN, Medtronic is one of the world’s leading medical technology companies, specializing in implantable and interventional therapy devices and products. Over the long haul, the company has successfully adopted the organic as well as inorganic routes to success.
The Zacks Consensus Estimate for Medtronic is pegged at $1.12 and the company has a long-term earnings expectation of 6.40%. Moreover, the company has registered an average earnings beat of 3.96% over the trailing twelve months.
The company currently has a Zacks Rank #3 along with an Earnings ESP of +0.89%. Moreover, despite challenging economic conditions, pressure on core segments and a larger-than-expected currency headwind, Medtronic is trying every means to boost growth. This includes penetration into the international markets, and expansion of portfolio and restructuring initiatives, which should benefit the company over the long term.
-- Medtronic is expected to report its fourth-quarter fiscal 2014 results before the opening bell on May 20.
Opko Health, Inc. (OPK - Free Report) is a multi-national biopharmaceutical and diagnostics company that is currently developing a range of solutions for diagnosis, treatment and prevention of various conditions, including point-of-care tests, laboratory developed tests (LDTs), molecular diagnostics tests, and proprietary pharmaceuticals and vaccines.
The stock carries a Zacks Rank #3 with an Earnings ESP of +20.00%. The Zacks Consensus Estimate for the first quarter is pegged at a loss of 10 cents a share.
Opko Health has delivered an average earnings beat of 8.25% over the trailing twelve months. Based on favorable market dynamics, the company established pharmaceutical platforms in Chile, Spain, Mexico, Uruguay and Brazil. In view of the untapped potential of the large and rapidly growing global medical market, the company plans to commercialize its products in these high-growth regions including emerging markets.
--Opko Health is expected to report its first-quarter 2014 earnings on May 9.
The Bottom Line

The medical devices industry currently has been subject to the much controversial 2.3% medical device excise tax and sequestration-related spending cuts to the U.S. federal budget which have undermined its prospects. In order to sustain the current precarious condition within the MedTech space, key players are trying every possible means to change their business models and cost structures. 
Primarily the sector participants are undertaking various restructuring initiatives to counter costs associated with the implementation of the new tax. This renewed focus could result in continued mergers and acquisitions (M&A) and expansion to emerging markets going forward. They are also trying to divest their nonpaying operations in order to weather the tax burden. Nevertheless, you could safely rely on the industry outperformers that still possess earnings strength.

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