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The healthcare space has been in a sticky situation with incongruous incidents hitting it back to back since the Republicans took hold of the Senate and the House. President Donald Trump’s promise to come up with a superior healthcare plan that will fully repeal and replace Barack Obama’s signature Affordable Care Act (ACA), is still hanging in the balance.

On Jul 25, the first day of the ongoing debate session, Trump had a taste of success as the latest Republican healthcare bill (with extensive amendment to the original Obamacare) won by a very narrow margin of 51-50. However, investors were not much optimistic about this development.

Promises and Likely Consequences of Latest Health Bill

Trump’s latest bill primarily promises improved insurance coverage from the existing law with significantly lower American premiums. However, according to the Congressional Budget Office (CBO) and the staff of the Joint Committee on Taxation’s (JCT) cost estimate released on Jul 19, if the ACA or Obamacare’s full-repeal bill is finally signed, the number of uninsured people would increase by 17 million in 2018, from the present uninsured number.

This will further intensify to 27 million uninsured in 2020 after the elimination of the ACA’s expansion of the eligibility for Medicaid and the elimination of subsidies for insurance purchased through marketplaces established by the ACA. The number of uninsured will then increase to 32 million in 2026.

MedTech Insight

While twists and turns unfold at the Capitol Hill, markets watchers will keep a tab on the influence that each dramatic move will have the spaces closely related. Here, we ponder over medical device stocks that stand to gain or lose on the political gridlock. Supporters of the Republican alternative argue that if the proposed amendment is implemented, more people would be covered as a portion of the cost would be borne by the government. Needless to mention, this may lead to the broadening of customer base for MedTech companies that would have otherwise suffered.

Notably, the medical device industry was happy with the original Trump action plan which promised cancellation of major healthcare taxes including the two key taxes of Obamacare — the  unpopular Cadillac tax (40% excise tax on high-cost healthcare plans) and the controversial 2.3% MedTech tax. If the full-repeal plan gets voted out, the fraternity worries whether the final plan will still include the MedTech tax repeal in its agenda.

Q2 Earnings Sneak Peek

Most of the MedTech majors are lined up to report their earnings results over the next week. But in the present eco-political hullabaloo, we lack visibility whether this corner will be able to continue its bullish run in the second-quarter earnings season. Our latest Earnings Trends also fails to paint any bright picture for the broader Medical space which is expected to register year-over-year earnings growth of a mere 1.1% on revenue growth of 4%. This compares unfavorably with the prior quarter’s reported earnings growth of 5.6% on revenue growth of 5.7%.

Making the Right Choice

Given the numerous stocks in the medical sector that almost always muddle one’s stock-picking ability, the Zacks methodology could offer some relief. One can narrow down the choices by focusing on medical device stocks (a specialized chunk under the medical sector) that have the desirable combination of a positive Earnings ESP and a favorable Zacks Rank – Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising with their next earnings announcement. It shows 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.

Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.

Going by this criterion, we present four medical device stocks that are poised to beat estimates this quarter.

IDEXX Laboratories, Inc. (IDXX - Free Report)

Headquartered in Delaware NJ, IDEXX Laboratories, Inc. (IDXX - Free Report) is a developer, manufacturer and distributer of products and services primarily for the companion animal veterinary, livestock and poultry, water testing and dairy markets. IDEXX achieved strong organic growth in the U.S. and international regions in the last reported first quarter of 2017, driven by strong global gains in Companion Animal Group (CAG) Diagnostics recurring revenues, double-digit organic revenue gains across consumable, reference lab and rapid assay revenues, as well as continued expansion of the premium instrument installed base. The company expects this bullish trend to continue in the upcoming release as well.

IDEXX is scheduled to report its second-quarter 2017 numbers on Aug 1. We expect the company to beat earnings estimates as it has a Zacks Rank #2 and an Earnings ESP of +1.19%.

Dextera Surgical Inc. (DXTR - Free Report)

Dextera Surgical is the developer of proprietary stapling devices for minimally invasive surgical procedures. It primarily develops and commercializes MicroCutter 5/80, a cartridge-based micro cutter device used by for thoracic, pediatric, bariatric, colorectal and general surgeons.

The company is scheduled to report fourth-quarter fiscal 2017 numbers on Aug 8. We expect the company to beat earnings estimates as it has an Earnings ESP of +9.09% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Teleflex Incorporated (TFX - Free Report)

Teleflex is a global provider of medical technologies designed to improve the health and quality of people’s lives. The company has a diverse portfolio with solutions in the fields of vascular and interventional access, surgical, anesthesia, cardiac care, urology, emergency medicine and respiratory care.

Teleflex is scheduled to report second-quarter 2017 numbers on Aug 3. We expect the company to beat earnings estimates as it has a Zacks Rank #2 and an Earnings ESP of +1.06%.

Quintiles IMS Holdings, Inc. (Q - Free Report)

Quintile IMS is a leading integrated information and technology-enabled healthcare service provider worldwide, dedicated to improve clients’ clinical, scientific and commercial results.

Teleflex is slated to report second-quarter 2017 numbers on Aug 3. We expect the company to beat earnings estimates as it has a Zacks Rank #2 and an Earnings ESP of +0.95%.

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