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3 MedTech Stocks Likely to Top Estimates This Earnings Season
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So far, the second-quarter reporting cycle has displayed a year-over-year earnings deterioration for MedTech companies within the broader Medical sector. The handful of MedTech stocks that have released their earnings so far showed market share gain within their base businesses through the months of the second quarter compared with the same period in 2022. However, ongoing macroeconomic headwinds in the form of inflation and currency woes put pressure on the bottom line.
Even if we consider the performance on a sequential basis, second-quarter earnings of the majority of the companies are likely to have declined. Replicating the market-wide trend, this sector’s second-quarter results are likely to be significantly dampened by the ongoing macroeconomic threat in the United States and outside.
Here we talk about three stocks — National Vision (EYE - Free Report) , Cardinal Health (CAH - Free Report) and Henry Schein (HSIC - Free Report) — that are expected to beat earnings estimates in the ongoing reporting cycle.
Two Major Q2 Trends
The second-quarter reporting cycle is expected to depict a year-over-year improvement in base sales volumes. There has been a significant rebound in non-COVID and elective legacy businesses of the MedTech companies. Meanwhile, the second-quarter results of the diagnostic testing companies are already reflecting a year-over-year decline in testing demand compared to the year-ago period’s COVID-induced surge in testing level.
However, a contrasting trend is also evident. Considering the deteriorating trade situation, with global inflationary pressure leading to an extremely tight situation related to raw material and labor cost as well as freight charges, we expect second-quarter results to be disappointing in comparison to the year-ago period. Further, through the second-quarter months, the companies, which are into international trade, are expected to have faced severe currency headwinds.
In this regard, IMF, in July, provided its World Economic Outlook Update. Going by the outlook, the baseline forecast is for growth to decelerate from 3.5% in 2022 to 3% in 2023 as well as in 2024. According to IMF, developed economies continue to drive the decline in growth from 2022 to 2023, with weaker manufacturing, as well as idiosyncratic factors, offsetting stronger services activity. IMF noted that the rise in central bank policy rates to fight inflation continues to dent economic growth.
This is expected to get reflected in the second-quarter results of the MedTech companies in the form of logistical challenges and increasing unit cost in the second quarter, resulting in corporate profitability cuts.
Q2 Scorecard Thus Far
Per the latest Earnings Preview, quarterly results so far have been dull year over year, reflecting ongoing macroeconomic headwinds and inflationary pressure worldwide. Going by the sector’s scorecard, 56.9% of the companies in the Medical sector, constituting 69.1% of the sector’s market capitalization, reported earnings till Aug 2. Of these, 84.8% beat both earnings and revenue estimates. Earnings declined 33.8% year over year on 4.5% higher revenues.
Overall, second-quarter earnings of the Medical sector are expected to plunge 31.1% on 4.3% revenue growth. This compares with the first-quarter earnings decline of 17.9% on revenue growth of 4%.
Edwards Lifesciences Corporation (EW - Free Report) is one of the MedTech companies whose base-business performance registered a strong recovery rate.
In the second quarter, global sales in the legacy Transcatheter Aortic Valve Replacement (TAVR) product group improved 9.3% year over year. In the United States, Edwards' TAVR sales were aided by improved hospital staffing levels and the continued successful launch of SAPIEN 3 Ultra RESILIA. The company’s Surgical Structural Heart sales in the quarter were up 12.2% from the year-ago quarter’s level driven by the adoption of Edwards' premium products across all regions.
However, rising costs and expenses in the face of record inflationary pressure put huge pressure on margins for the company. During the reported quarter, gross margin contracted 281 basis points (bps) to 77.6%. Operating margin contracted 308 bps to 29.3% in the second quarter.
LabCorp’s (LH - Free Report) revenues in the second quarter rose 2% year over year organically. The rise in organic revenues was driven by 9.8% organic Base Business, partially offset by a 7.8% decline in COVID-19 PCR and antibody testing.
LabCorp’s gross margin contracted 448 bps to 27.8% in the second quarter. Adjusted operating margin contracted 636 bps from the year-ago quarter to 11.1%.
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.
Amid an uncertain macro environment, National Vision is expected to have recorded positive comparable sales growth in the second quarter, primarily driven by strength in its managed care business. In the last reported quarter, the company opened four new America's Best and four Eyeglass World stores, and closed five stores. For America's Best and Eyeglass World growth brands combined, unit growth increased 5% from the total store base last year and ended the quarter with 1,357 stores. With the company’s continued focus on new store openings and customer-facing technology investments through 2023, we expect this growth momentum to have continued in the second quarter of 2023.
National Vision’s Earnings ESP of +21.21% and a Zacks Rank #3 raise the possibility of an earnings surprise in the to-be-reported quarter.
National Vision is slated to release results for the second quarter of 2023 on Aug 10.
National Vision Holdings, Inc. Price and EPS Surprise
Cardinal Health’s Pharmaceutical segment is expected to have acted as a key catalyst driving growth in the fourth quarter of fiscal 2023. Its performance is likely to have been driven by branded pharmaceutical sales growth from Pharmaceutical Distribution and Specialty Solutions customers. Further, the company’s diversified product portfolio and a slew of strategic deals over the past few months are likely to have contributed to the to-be-reported quarter’s top line.
Cardinal Health is scheduled to release fourth-quarter fiscal 2023 results on Aug 15, 2023.
Cardinal Health has an Earnings ESP of +0.10% and a Zacks Rank #3.
For Henry Schein, within the Global Dental Specialty business, implant sales growth in the second quarter of 2023 is likely to have been driven by the premium Camlog product line in Germany, Austria and Switzerland. Further, North America is likely to have witnessed the increased trend of dental specialty practices being acquired by larger dental service organizations. (Read more: Henry Schein Set to Post Q2 Earnings: What Awaits?)
Henry Schein is scheduled to release second-quarter 2023 results on Aug 7.
Henry Schein has an Earnings ESP of +0.62% and a Zacks Rank #3.
Image: Bigstock
3 MedTech Stocks Likely to Top Estimates This Earnings Season
So far, the second-quarter reporting cycle has displayed a year-over-year earnings deterioration for MedTech companies within the broader Medical sector. The handful of MedTech stocks that have released their earnings so far showed market share gain within their base businesses through the months of the second quarter compared with the same period in 2022. However, ongoing macroeconomic headwinds in the form of inflation and currency woes put pressure on the bottom line.
Even if we consider the performance on a sequential basis, second-quarter earnings of the majority of the companies are likely to have declined. Replicating the market-wide trend, this sector’s second-quarter results are likely to be significantly dampened by the ongoing macroeconomic threat in the United States and outside.
Here we talk about three stocks — National Vision (EYE - Free Report) , Cardinal Health (CAH - Free Report) and Henry Schein (HSIC - Free Report) — that are expected to beat earnings estimates in the ongoing reporting cycle.
Two Major Q2 Trends
The second-quarter reporting cycle is expected to depict a year-over-year improvement in base sales volumes. There has been a significant rebound in non-COVID and elective legacy businesses of the MedTech companies. Meanwhile, the second-quarter results of the diagnostic testing companies are already reflecting a year-over-year decline in testing demand compared to the year-ago period’s COVID-induced surge in testing level.
However, a contrasting trend is also evident. Considering the deteriorating trade situation, with global inflationary pressure leading to an extremely tight situation related to raw material and labor cost as well as freight charges, we expect second-quarter results to be disappointing in comparison to the year-ago period. Further, through the second-quarter months, the companies, which are into international trade, are expected to have faced severe currency headwinds.
In this regard, IMF, in July, provided its World Economic Outlook Update. Going by the outlook, the baseline forecast is for growth to decelerate from 3.5% in 2022 to 3% in 2023 as well as in 2024. According to IMF, developed economies continue to drive the decline in growth from 2022 to 2023, with weaker manufacturing, as well as idiosyncratic factors, offsetting stronger services activity. IMF noted that the rise in central bank policy rates to fight inflation continues to dent economic growth.
This is expected to get reflected in the second-quarter results of the MedTech companies in the form of logistical challenges and increasing unit cost in the second quarter, resulting in corporate profitability cuts.
Q2 Scorecard Thus Far
Per the latest Earnings Preview, quarterly results so far have been dull year over year, reflecting ongoing macroeconomic headwinds and inflationary pressure worldwide. Going by the sector’s scorecard, 56.9% of the companies in the Medical sector, constituting 69.1% of the sector’s market capitalization, reported earnings till Aug 2. Of these, 84.8% beat both earnings and revenue estimates. Earnings declined 33.8% year over year on 4.5% higher revenues.
Overall, second-quarter earnings of the Medical sector are expected to plunge 31.1% on 4.3% revenue growth. This compares with the first-quarter earnings decline of 17.9% on revenue growth of 4%.
Edwards Lifesciences Corporation (EW - Free Report) is one of the MedTech companies whose base-business performance registered a strong recovery rate.
In the second quarter, global sales in the legacy Transcatheter Aortic Valve Replacement (TAVR) product group improved 9.3% year over year. In the United States, Edwards' TAVR sales were aided by improved hospital staffing levels and the continued successful launch of SAPIEN 3 Ultra RESILIA. The company’s Surgical Structural Heart sales in the quarter were up 12.2% from the year-ago quarter’s level driven by the adoption of Edwards' premium products across all regions.
However, rising costs and expenses in the face of record inflationary pressure put huge pressure on margins for the company. During the reported quarter, gross margin contracted 281 basis points (bps) to 77.6%. Operating margin contracted 308 bps to 29.3% in the second quarter.
LabCorp’s (LH - Free Report) revenues in the second quarter rose 2% year over year organically. The rise in organic revenues was driven by 9.8% organic Base Business, partially offset by a 7.8% decline in COVID-19 PCR and antibody testing.
LabCorp’s gross margin contracted 448 bps to 27.8% in the second quarter. Adjusted operating margin contracted 636 bps from the year-ago quarter to 11.1%.
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.
Amid an uncertain macro environment, National Vision is expected to have recorded positive comparable sales growth in the second quarter, primarily driven by strength in its managed care business. In the last reported quarter, the company opened four new America's Best and four Eyeglass World stores, and closed five stores. For America's Best and Eyeglass World growth brands combined, unit growth increased 5% from the total store base last year and ended the quarter with 1,357 stores. With the company’s continued focus on new store openings and customer-facing technology investments through 2023, we expect this growth momentum to have continued in the second quarter of 2023.
National Vision’s Earnings ESP of +21.21% and a Zacks Rank #3 raise the possibility of an earnings surprise in the to-be-reported quarter.
National Vision is slated to release results for the second quarter of 2023 on Aug 10.
National Vision Holdings, Inc. Price and EPS Surprise
National Vision Holdings, Inc. price-eps-surprise | National Vision Holdings, Inc. Quote
Cardinal Health’s Pharmaceutical segment is expected to have acted as a key catalyst driving growth in the fourth quarter of fiscal 2023. Its performance is likely to have been driven by branded pharmaceutical sales growth from Pharmaceutical Distribution and Specialty Solutions customers. Further, the company’s diversified product portfolio and a slew of strategic deals over the past few months are likely to have contributed to the to-be-reported quarter’s top line.
Cardinal Health is scheduled to release fourth-quarter fiscal 2023 results on Aug 15, 2023.
Cardinal Health has an Earnings ESP of +0.10% and a Zacks Rank #3.
Cardinal Health, Inc. Price and EPS Surprise
Cardinal Health, Inc. price-eps-surprise | Cardinal Health, Inc. Quote
For Henry Schein, within the Global Dental Specialty business, implant sales growth in the second quarter of 2023 is likely to have been driven by the premium Camlog product line in Germany, Austria and Switzerland. Further, North America is likely to have witnessed the increased trend of dental specialty practices being acquired by larger dental service organizations. (Read more: Henry Schein Set to Post Q2 Earnings: What Awaits?)
Henry Schein is scheduled to release second-quarter 2023 results on Aug 7.
Henry Schein has an Earnings ESP of +0.62% and a Zacks Rank #3.
Henry Schein, Inc. Price and EPS Surprise
Henry Schein, Inc. price-eps-surprise | Henry Schein, Inc. Quote