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3 MedTech Stocks That are Likely to Beat This Earnings Season
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So far, the second-quarter reporting cycle has displayed a year-over-year improvement for the MedTech companies within the broader Medical sector. Overall, the handful of MedTech stocks that have released their earnings so far showed accelerated base business growth through the months of the second quarter compared with 2021, given the reduction in the severity of COVID-19 despite the emergence of new virus variants.
However, if we consider the performance on a sequential basis, the Q2 performance of the majority of the companies is likely to have deteriorated. A number of MedTech players are expected to have witnessed rising raw material costs and other expense pressure through the Q2 months, thanks to the global surge in the inflationary situation. Added to this, the ongoing staffing shortages and supply-chain hazards with the emergence of the new COVID variants are expected to have dampened the growth process.
Meanwhile, industry players that have well-adapted to changing consumer preferences are witnessing a continued uptrend in their stock prices. Also, the legacy base business recovery of the companies through Q2 is expected to be sharp.
Here we talk about three stocks, STERIS (STE - Free Report) , Thermo Fisher (TMO - Free Report) and IDEXX Laboratories (IDXX - Free Report) that are expected to beat earnings estimates in the ongoing reporting cycle.
Two Major Q2 Trends
The Q2 reporting cycle depicted a solid rebound in base sales volumes with the companies reaching their pre-pandemic legacy business level. This was attributed to a significant reduction in COVID-led fatality across the United States and other developed markets. With the continued opening up of the economy, there has been a significant rebound in non-COVID and elective legacy businesses of the MedTech companies. Also, the second-quarter results of the diagnostic testing companies are expected to reflect a sequential rise in testing demand, thanks to rising new cases, leading to impressive business growth for many companies.
However, a contrasting trend is also evident. Considering the deteriorating trade situation, with the global inflationary pressure leading to an extremely tighter situation related to raw material and labor cost as well as freight charges, we expect second-quarter results to be disappointing in comparison to Q1. In this regard, IMF, on its Jul 26 World Economic Outlook Update, noted that a tentative recovery in 2021 has been followed by increasingly gloomy developments in 2022. IMF specifically addressed that theworse-than-anticipated slowdown in China, difficult trade situation in Russia, along with significant slowing down of U.S. consumer spending in the inflationary phase resulted in output contraction in the second quarter.
The IMF update noted that global growth is expected to moderate from 6.1% in 2021 to 3.2% in 2022—0.4 percentage points lower than in the April 2022 World Economic Outlook. The reduced household purchasing power and tighter monetary policy drove a downward revision of 1.4 percentage points in the United States.
This deteriorating economic outlook is evident in the MedTech sector’s sequential business slowdown in Q2. The industry players who had witnessed a strong rebound in product demand across core business segments till the first quarter, might have collectively faced a setback in terms of reduction in consumer spending and staffing shortages.
Q2 Scorecard Thus Far
Per the latest Earnings Preview, 8.9% of the companies in the broader Medical sector, constituting nearly 29% of the sector’s market capitalization, have already reported earnings. Of these, 100% beat in terms of both earnings and revenue estimates. Earnings increased 10.4% year over year on 11.2% higher revenues. Overall, second-quarter earnings for the Medical sector are expected to rise 1.5% on an 8.1% sales increase.
Abbott (ABT - Free Report) and Quest Diagnostics (DGX - Free Report) are a few companies whose base-business performance registered a strong recovery rate.
In Q2, Abbott’sOrganic sales increased 14.5%, led by growth in the core Established Pharmaceuticals Division (EPD), diagnostics, and medical devices.
Within EPD, Abbott achieved 9% organic sales growth led by double-digit growth across several countries, including China, Brazil, Colombia, Mexico, and Vietnam. In Diagnostics, in the reported quarter, worldwide diagnostic sales grew 35% organically. COVID-19 test sales were $2.3 billion in the quarter, more than 95% of which came from rapid tests, including BinaxNOW in the United States, Panbio internationally, and ID NOW globally. Within medical devices, Abbott’ssales grew 7.5% in the quarter led by growth in cardiovascular devices, particularly in structural heart and heart failure. In diabetes care, sales of FreeStyle Libre grew more than 25% organically with the user base now exceeding 4 million users globally.
Quest Diagnostics’ legacy base business grew 2.9% in the second quarter amid softer utilization trends, which impacted the entire health care industry. During the reported quarter, the company saw solid performances from hematology, prenatal genetics and pharma services. The company also ramped up investments to accelerate growth in the base business, particularly in advanced diagnostics and direct-to-consumer testing.
However, pressure on volume, owing to a difficult macroeconomic situation and pricing, constitutes the primary risk for Quest Diagnostics. Total volume, measured by the number of requisitions, was down 1.4% year over year in the second quarter. Revenue per requisition declined 2.6% year over year due to lower COVID-19 molecular testing volume.
Zacks Methodology
Given the high degree of diversity in the Medtech 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.
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 MedTech stocks that are expected to beat earnings estimates in this reporting cycle.
STERIS: The Healthcare arm of STERIS has been witnessing a major rebound, with considerable constant currency organic growth during fiscal 2022. STERIS’ Key Surgical and Cantel Medical businesses have been making significant contributions to consumable revenues within the Healthcare arm over the last few quarters. With more normalized procedure volume through the months of the first quarter of fiscal 2023, this uptrend is expected to have continued in Q1. (Read more: STERIS to Report Q1 Earnings: What's in the Cards?)
STERIS’ Earnings ESP of +1.85% and a Zacks Rank #1 raise the possibility of an earnings surprise in the to-be-reported quarter.
STERIS is slated to release results for the first quarter of fiscal 2023 on Aug 2.
Thermo Fisher: Through the months of the second quarter, Thermo Fisher’s Analytical Instruments segment is expected to have generated strong sales, banking on electron microscopy, chromatography, mass spectrometry, chemical analysis as well as the research and safety market channel businesses. The company is expected to report growth driven by a favorable business mix and new launches including four new gas chromatography and GC-MS instruments to advance analytical testing for food, environmental, industrial, and pharmaceutical applications. (Read more: What's in Store for Thermo Fisher in Q2 Earnings?)
Thermo Fisher is scheduled to release second-quarter 2022 results on Jul 28.
Thermo Fisher has an Earnings ESP of +2.96% and a Zacks Rank #3.
Thermo Fisher Scientific Inc. Price and EPS Surprise
IDEXX: The Companion Animal Group (CAG) business of IDEXX is expected to have gained in the second quarter of 2022 from consistent strong organic CAG Diagnostics recurring revenues backed by an increasing number of pet patients. With economies returning to pre-pandemic levels, we anticipate a rebound in the U.S. clinical visits to have led to CAG Diagnostic recurring revenue gains in Q2. The CAG arm is also likely to have gained from continued organic revenue growth in CAG diagnostic instruments, as it did in the last reported quarter. (Read more: IDEXX to Report Q2 Earnings: What's in the Cards?)
IDEXX is scheduled to release second-quarter 2022 results on Aug 2.
IDXX has an Earnings ESP of +49.15% and a Zacks Rank #3.
Image: Bigstock
3 MedTech Stocks That are Likely to Beat This Earnings Season
So far, the second-quarter reporting cycle has displayed a year-over-year improvement for the MedTech companies within the broader Medical sector. Overall, the handful of MedTech stocks that have released their earnings so far showed accelerated base business growth through the months of the second quarter compared with 2021, given the reduction in the severity of COVID-19 despite the emergence of new virus variants.
However, if we consider the performance on a sequential basis, the Q2 performance of the majority of the companies is likely to have deteriorated. A number of MedTech players are expected to have witnessed rising raw material costs and other expense pressure through the Q2 months, thanks to the global surge in the inflationary situation. Added to this, the ongoing staffing shortages and supply-chain hazards with the emergence of the new COVID variants are expected to have dampened the growth process.
Meanwhile, industry players that have well-adapted to changing consumer preferences are witnessing a continued uptrend in their stock prices. Also, the legacy base business recovery of the companies through Q2 is expected to be sharp.
Here we talk about three stocks, STERIS (STE - Free Report) , Thermo Fisher (TMO - Free Report) and IDEXX Laboratories (IDXX - Free Report) that are expected to beat earnings estimates in the ongoing reporting cycle.
Two Major Q2 Trends
The Q2 reporting cycle depicted a solid rebound in base sales volumes with the companies reaching their pre-pandemic legacy business level. This was attributed to a significant reduction in COVID-led fatality across the United States and other developed markets. With the continued opening up of the economy, there has been a significant rebound in non-COVID and elective legacy businesses of the MedTech companies. Also, the second-quarter results of the diagnostic testing companies are expected to reflect a sequential rise in testing demand, thanks to rising new cases, leading to impressive business growth for many companies.
However, a contrasting trend is also evident. Considering the deteriorating trade situation, with the global inflationary pressure leading to an extremely tighter situation related to raw material and labor cost as well as freight charges, we expect second-quarter results to be disappointing in comparison to Q1. In this regard, IMF, on its Jul 26 World Economic Outlook Update, noted that a tentative recovery in 2021 has been followed by increasingly gloomy developments in 2022. IMF specifically addressed that theworse-than-anticipated slowdown in China, difficult trade situation in Russia, along with significant slowing down of U.S. consumer spending in the inflationary phase resulted in output contraction in the second quarter.
The IMF update noted that global growth is expected to moderate from 6.1% in 2021 to 3.2% in 2022—0.4 percentage points lower than in the April 2022 World Economic Outlook. The reduced household purchasing power and tighter monetary policy drove a downward revision of 1.4 percentage points in the United States.
This deteriorating economic outlook is evident in the MedTech sector’s sequential business slowdown in Q2. The industry players who had witnessed a strong rebound in product demand across core business segments till the first quarter, might have collectively faced a setback in terms of reduction in consumer spending and staffing shortages.
Q2 Scorecard Thus Far
Per the latest Earnings Preview, 8.9% of the companies in the broader Medical sector, constituting nearly 29% of the sector’s market capitalization, have already reported earnings. Of these, 100% beat in terms of both earnings and revenue estimates. Earnings increased 10.4% year over year on 11.2% higher revenues. Overall, second-quarter earnings for the Medical sector are expected to rise 1.5% on an 8.1% sales increase.
Abbott (ABT - Free Report) and Quest Diagnostics (DGX - Free Report) are a few companies whose base-business performance registered a strong recovery rate.
In Q2, Abbott’sOrganic sales increased 14.5%, led by growth in the core Established Pharmaceuticals Division (EPD), diagnostics, and medical devices.
Within EPD, Abbott achieved 9% organic sales growth led by double-digit growth across several countries, including China, Brazil, Colombia, Mexico, and Vietnam. In Diagnostics, in the reported quarter, worldwide diagnostic sales grew 35% organically. COVID-19 test sales were $2.3 billion in the quarter, more than 95% of which came from rapid tests, including BinaxNOW in the United States, Panbio internationally, and ID NOW globally. Within medical devices, Abbott’ssales grew 7.5% in the quarter led by growth in cardiovascular devices, particularly in structural heart and heart failure. In diabetes care, sales of FreeStyle Libre grew more than 25% organically with the user base now exceeding 4 million users globally.
Quest Diagnostics’ legacy base business grew 2.9% in the second quarter amid softer utilization trends, which impacted the entire health care industry. During the reported quarter, the company saw solid performances from hematology, prenatal genetics and pharma services. The company also ramped up investments to accelerate growth in the base business, particularly in advanced diagnostics and direct-to-consumer testing.
However, pressure on volume, owing to a difficult macroeconomic situation and pricing, constitutes the primary risk for Quest Diagnostics. Total volume, measured by the number of requisitions, was down 1.4% year over year in the second quarter. Revenue per requisition declined 2.6% year over year due to lower COVID-19 molecular testing volume.
Zacks Methodology
Given the high degree of diversity in the Medtech 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 MedTech stocks that are expected to beat earnings estimates in this reporting cycle.
STERIS: The Healthcare arm of STERIS has been witnessing a major rebound, with considerable constant currency organic growth during fiscal 2022. STERIS’ Key Surgical and Cantel Medical businesses have been making significant contributions to consumable revenues within the Healthcare arm over the last few quarters. With more normalized procedure volume through the months of the first quarter of fiscal 2023, this uptrend is expected to have continued in Q1. (Read more: STERIS to Report Q1 Earnings: What's in the Cards?)
STERIS’ Earnings ESP of +1.85% and a Zacks Rank #1 raise the possibility of an earnings surprise in the to-be-reported quarter.
STERIS is slated to release results for the first quarter of fiscal 2023 on Aug 2.
STERIS plc Price and EPS Surprise
STERIS plc price-eps-surprise | STERIS plc Quote
Thermo Fisher: Through the months of the second quarter, Thermo Fisher’s Analytical Instruments segment is expected to have generated strong sales, banking on electron microscopy, chromatography, mass spectrometry, chemical analysis as well as the research and safety market channel businesses. The company is expected to report growth driven by a favorable business mix and new launches including four new gas chromatography and GC-MS instruments to advance analytical testing for food, environmental, industrial, and pharmaceutical applications. (Read more: What's in Store for Thermo Fisher in Q2 Earnings?)
Thermo Fisher is scheduled to release second-quarter 2022 results on Jul 28.
Thermo Fisher has an Earnings ESP of +2.96% and a Zacks Rank #3.
Thermo Fisher Scientific Inc. Price and EPS Surprise
Thermo Fisher Scientific Inc. price-eps-surprise | Thermo Fisher Scientific Inc. Quote
IDEXX: The Companion Animal Group (CAG) business of IDEXX is expected to have gained in the second quarter of 2022 from consistent strong organic CAG Diagnostics recurring revenues backed by an increasing number of pet patients. With economies returning to pre-pandemic levels, we anticipate a rebound in the U.S. clinical visits to have led to CAG Diagnostic recurring revenue gains in Q2. The CAG arm is also likely to have gained from continued organic revenue growth in CAG diagnostic instruments, as it did in the last reported quarter. (Read more: IDEXX to Report Q2 Earnings: What's in the Cards?)
IDEXX is scheduled to release second-quarter 2022 results on Aug 2.
IDXX has an Earnings ESP of +49.15% and a Zacks Rank #3.
IDEXX Laboratories, Inc. Price and EPS Surprise
IDEXX Laboratories, Inc. price-eps-surprise | IDEXX Laboratories, Inc. Quote
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