The Q4 earnings season is coming to an end. So far, this reporting cycle has displayed a year-over-year improvement for the medical device companies within the broader
Medical sector. Overall, the results of the majority of medical device stocks so far have shown accelerated base business growth compared to 2020 despite being hit by Omicron, the more contagious variant of COVID-19.
However, if we consider the performance on a sequential basis, the Q4 results of the majority of the companies significantly declined. A number of medical device players witnessed severe staffing shortage and supply-chain related hazards in the Q4 months, thanks to the emergence of the Omicron variant, which was identified by WHO as a variant of concern.
Meanwhile, industry players that have well-adapted to changing consumer preference or have a COVID-19-based businesses are still witnessing a continued uptrend in their stock prices.
Here we talk about three stocks,
Perrigo ( PRGO Quick Quote PRGO - Free Report) , The Cooper Companies ( COO Quick Quote COO - Free Report) and Sight Sciences ( SGHT Quick Quote SGHT - Free Report) that are expected to beat earnings estimates in the ongoing reporting cycle. Two Major Q4 Trends
The first half of the Q4 reporting cycle depicted a solid rebound in base sales volumes with the majority of the companies already reaching or approaching their pre-pandemic business level. This was attributed to a significant fall in COVID-19 cases across the United States and other developed markets through the months of the fourth quarter, banking on mass vaccination drive. With the gradual lifting of restrictions and people getting back to pre-pandemic normalcy, there was a significant rebound in non-COVID and elective legacy businesses of the medical device companies.
However, a contrasting trend is also evident. Considering the deteriorating trade situation on continuing emergence of new and more contagious COVID-19 variants like Delta and Omicron, the Federal Reserve’s September 2021 Economic Projection outlined real GDP growth of 5.9% for 2021, a reduction from the June 2021 projection of 7%. This deteriorating economic outlook is evident from the medical instruments sector’s business slowdown in the second half of Q4. The industry players who had witnessed a strong rebound in product demand across its core business segments during Q3 and the first half of Q4 collectively faced a setback in the second half in terms of disrupted procedure volumes and staffing shortage due to the massive emergence of the new COVID-19 variants in major international geographies and the United States.
Q4 Scorecard Thus Far
Per the latest
Earnings Preview, 80.4% of the companies in the broader Medical sector, constituting nearly 91.5% of the sector’s market capitalization, have already reported earnings. Of these, 51.1% beat both earnings and revenue estimates. Earnings increased 18.5% year over year on 12.7% higher revenues. Overall, fourth-quarter earnings for the Medical sector are expected to rise 23.2% on an 18.4% sales increase. Bio-Rad ( BIO Quick Quote BIO - Free Report) , Thermo Fisher ( TMO Quick Quote TMO - Free Report) and LabCorp are a few companies whose base-business performance registered a strong recovery rate.
In Q4, Bio-Rad continued to experience solid recovery in most of its key global markets, as well as an uptick in demand for COVID-related products, driven by the spread of the new Omicron variant. Further, strength in its key product lines across major geographic regions buoys optimism. The Diagnostics business registered growth across all of its product lines, driven by a recovery of routine testing, which is now generally approaching pre-COVID levels.
Thermo Fisher delivered 8% organic growth in the base business, ahead of its expectationsin the fourth quarter. Thermo Fisher generated $2.45 billion in COVID-19 response-related revenues. The company also witnessed strength across the majority of its end markets.
For LabCorp, during the quarter, the Covance Drug Development business delivered higher sales on strong base business growth. Within Diagnostics, base business organic volume increased on solid year-over-year growth in esoteric and routine procedures. In terms of COVID-19 response, in the fourth quarter, LabCorp experienced greater-than-anticipated COVID-19 testing volumes. The company conducted nearly 8.6 million COVID-19 tests in the fourth quarter.
On the other hand, Zimmer Biomet continued to stumble because of its nature of business. The company registered business loss in Q4 due to hospital staffing shortages and the global spread of Omicron. Further, a more-than-anticipated impact of China VBP resulted in dismal Q4 revenues. The company expects these issues to continue into 2022 as well.
Given the high degree of diversity in the Medical Products industry, finding the right stocks with the potential to beat estimates might be quite a daunting task.
However, our proprietary Zacks methodology makes this fairly simple.
We are focusing on stocks that have the combination of a positive
Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here .
Our research shows that for stocks with this combination, the chances of an earnings surprise are as high as 70%.
Earnings ESP provides the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our
Earnings ESP Filter.
Here we present three medical device stocks that are expected to beat earnings estimates in this reporting cycle.
Perrigo: Perrigo’s net sales are expected to have witnessed strong gains in Q4, driven by growing e-commerce, contract sales and the recently divested Rx business. Within Consumer Self-Care International, Perrigo is expected to report growth strong performance in the U.K. store brand business, greater demand for smoking cessation products and improved pricing.
Perrigo’s Earnings ESP of +4.73% and a Zacks Rank #3 raise the possibility of an earnings surprise in the to-be-reported quarter.
Perrigo is scheduled to release results for the fourth quarter of 2021 on Mar 1, before market open.
The Cooper Companies: Cooper is expected to have witnessed substantial revenue growth in the first quarter of fiscal 2022 on the back of consistent success with its daily silicone hydrogel lenses that make it one of the leaders in the soft contact lens market. The company remains optimistic about its myopia management program, which consists of MiSight and Ortho K lenses.
The company is scheduled to release first-quarter 2022 results on Mar 3.
Cooper has an Earnings ESP of +0.12% and a Zacks Rank #3.
Sight Sciences: Banking on strong new account growth and increased utilization of its surgical glaucoma product, OMNI, the company is expected to have witnessed strong revenue growth in the fourth quarter. Added to this, earlier in November, the company announced FDA authorization to proceed with its Precision RCT under IDE. This should have a positive contribution to Sight Sciences’ Q4 performance,
Sight Sciences is scheduled to release third-quarter fiscal 2021 results on Mar 2.
Sight Sciences has an Earnings ESP of +1.77% and a Zacks Rank #2.