Boston Scientific Corporation (BSX Quick QuoteBSX - Free Report) is scheduled to report its second-quarter 2016 results before the opening bell on Jul 28. Last quarter, the company had posted a positive earnings surprise of 16.67%. The four-quarter trailing average beat is pegged at 7.45%. Let’s see how things are shaping up prior to this announcement.

Factors at Play

Pricing pressure has continued for Boston Scientific over the past several quarters. The last reported first quarter’s adjusted gross margin was significantly impacted by the pricing headwind. However, on an encouraging note, the company anticipates this headwind reversing gradually on the back of improved price management, primarily through market segmentation, tiered offerings and standard cost-reduction programs. This benefit is likely to be reflected in the second quarter.

With regard to adjusted operating margin, Boston Scientific’s seven successive quarters of improvement and a raised operating margin guidance have encouraged us to expect another quarter of strong sequential growth with more noticeable improvement in the Rhythm Management segment.

Moreover, the plant network optimization program completed at the end of 2015, transferred a portion of the company’s EP manufacturing to lower cost locations, is expected to contribute to the adjusted operating margin improvement.

We are also optimistic about the company’s gradually improving performance in Interventional Cardiology, led by an innovative portfolio and robust commercial teams globally. The company is consistently gaining share in a number of cardiovascular segments and DES, as a differentiated platform of premier and synergy, continues to build momentum and gain share globally.

Meanwhile, MedSurg is expected to demonstrate consistent performance, led by endoscopy. Urology and Women's Health are also estimated to grow beyond market levels driven by investment strategies in key international geographies.

However, Boston Scientific facing severe currency headwinds over the recent past, remains a concern. We note that, with the company recording 47% of its sales from the international market, it remains highly exposed to currency fluctuations. In the first quarter of 2015, foreign exchange headwind affected the company’s adjusted earnings by 10 cents a share.

Considering this impact, for 2016, Boston Scientific expects currency headwinds to the tune of approximately $100 million on revenues or $0.05−$0.06 per share on adjusted earnings relative to the year-ago quarter.

Further, sluggish CRM sales over the recent past continue to weigh on the stock. At the beginning of 2015, Boston Scientific predicted a slowdown in worldwide CRM sales for the entire year due to replacement cycle headwinds and competitive launches in the U.S. Although the company is currently expecting a rebound in its CRM performance in the second quarter and second half 2016, we remain on the sidelines based on the challenges the company is still facing in this business, especially in the U.S.

On an overall basis, Boston Scientific has provided its second-quarter 2016 guidance. The company projects adjusted earnings in the band of 25–27 cents per share on revenues of $2.01–$2.06 billion.

Earnings Whispers

Our proven model does not conclusively show that Boston Scientific is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: Boston Scientific’s Earnings ESP is 0.00%, since both the Most Accurate estimate and the Zacks Consensus Estimate stand at 27 cents.

Zacks Rank: Boston Scientific has a Zacks Rank #1 (Strong Buy) which increases the predictive power of ESP. However, a breakeven ESP makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are three companies you may want to consider as our proven model shows they have the right combination of elements to post an earnings beat this quarter:  

Bristol-Myers Squibb Company (BMY Quick QuoteBMY - Free Report) has an Earnings ESP of +3.03% and a Zacks Rank #1.

Allergan plc has an Earnings ESP of +0.9% and a Zacks Rank #2.

Laboratory Corp. of America Holdings (LH Quick QuoteLH - Free Report) has an Earnings ESP of +0.87% and a Zacks Rank #2.

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