The second-quarter earnings season has been quite impressive so far, with 286 members in the S&P 500 cohort having reported their results. Per the latest Earnings Preview, second-quarter earnings as a whole are expected to rise 9.2% year over year on 5% growth in revenues.
Medical, one of the broader sectors among the 16 Zacks sectors, is expected to record earnings growth in the quarter. As of Jul 28, 58.2% of the members from this sector posted impressive earnings and revenue beats of an average 84.4% and 68.8%, respectively.
With the majority of bigwigs yet to report results, the next week will be crucial in deciding whether this quarter will turn out to be a real game changer for the sector. At the end of the quarter, the sector is anticipated to witness 4% earnings growth on the back of a 4.3% revenue hike.
MedTech Faces Political Tumult
The political gridlock over the pullback of the Affordable Care Act or Obamacare has been making headlines in the MedTech space since long. Amid such political conundrum at the Capitol Hill, market watchers will keep a tab on the MedTech space.
The fraternity worries whether the final ‘Trump-care plan’ will include the ‘MedTech tax repeal’ in its agenda. Meanwhile, the old template of the plan, which promised to eradicate the infamous 2.3% medical device tax and the Cadillac tax (40% excise tax on high-cost healthcare plans) was not a bad deal.
Amid such a hullabaloo, the question that emerges is how medical technology players stand to gain or lose this earnings season. Let’s take a look at four major medical technology bigwigs that are expected to release earnings results on Aug 2:
Cardinal Health, Inc. (CAH - Free Report)
This Dublin, OH-based global player in the healthcare services and products space is set to report fourth-quarter fiscal 2017 results, before the bell.
The company reported adjusted earnings of $1.53 per share in the last reported quarter, which beat the Zacks Consensus Estimate of $1.46 and increased 7% on a year-over-year basis. The stock has delivered positive earnings surprises in the past four quarters, at an average of 4.05%.
Cardinal Health is banking on acquisitions, strategic buyouts, joint ventures and supply agreements to drive growth. Furthermore, growth in new and existing customer count is likely to boost earnings. Management at Cardinal Health is bullish about significant cash generation in the fourth quarter. Furthermore, the company’s Cordis business is expected to generate accretive returns in the quarter (read more: Can Cardinal Health Pull a Surprise in Q4 Earnings?).
Our model does not conclusively predict a beat for the company, given the combination of a Zacks Rank #3 (Hold) and an Earnings ESP of 0.00%. That is because, as per our model, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 to beat earnings. Simultaneously, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Hologic Inc. (HOLX - Free Report)
Headquartered in Bedford, MA, Hologic develops, manufactures, and supplies diagnostics, medical imaging systems and surgical products which cater to the healthcare needs of women. The company is slated to report third-quarter fiscal 2017 results, after the closing bell.
Last quarter, the company delivered a positive earnings surprise of 8.7%. Notably, Hologic’s earnings surpassed the Zacks Consensus Estimate in all of the past four quarters, with an average beat of 5.79%.
Overall, for third-quarter fiscal 2017, Hologic expects revenues of $790–$805 million (as compared to the prior guidance of $675–$685 million). The current Zacks Consensus Estimate for third-quarter revenues is $798.9 million, within the company’s projected range. Adjusted EPS is projected at 48–50 cents (beyond the high end of the previous 48–46 cent range). The current Zacks Consensus Estimate for third-quarter adjusted EPS is pegged at 49 cents, within the company’s guided range (read more: What's in the Offing for Hologic in Q3 Earnings?).
Our model does not conclusively predict an earnings beat for the company, given the combination of a Zacks Rank #4 and an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.
Masimo Corporation (MASI - Free Report)
Irvine, CA-based Masimo develops, manufactures and markets a family of non-invasive monitoring systems. The company is slated to release its second-quarter results, after the market closes.
In the last quarter, Masimo reported adjusted earnings of 57 cents per share, which surpassed the Zacks Consensus Estimate of 54 cents. Revenues improved 8.8% to $186.3 million, up from $171.2 million in the year-ago quarter. The figure also steered past the Zacks Consensus Estimate of $183.6 million.
Masimo faces fierce competition from OEM distributors and medical device bigwigs that might mar its top line. A sluggish hospital capital spending environment is an overhang. Intensifying competition from peers, overdependence on third-party providers and customer concentration risks are major concerns.
Our model does not conclusively predict a beat for the company, given the combination of a Zacks Rank #3 and an Earnings ESP of -5.63%.
Wright Medical Group N.V. (WMGI - Free Report)
Based in Amsterdam, Netherlands, Wright Medical Group is an orthopedics medical device company specializing in extremities and biologics products. The company is scheduled to announce second-quarter earnings results after the bell.
Wright Medical reported adjusted loss of 9 cents per share in the first quarter of 2017, wider than the Zacks Consensus Estimate of a loss of 8 cents. However, loss narrowed by 3 cents on a year-over-year basis. Net sales in the first quarter totaled $177 million, which was below the consensus mark of $182 million.
Pricing pressure continues to trouble Wright Medical. Increased costs related to product launches and re-building infrastructure are expected to put margins under pressure. Problems associated with distributors raise concerns as well.
Our model does not predict an earnings beat for the company in the second quarter. This is because the stock has an unfavorable combination of a Zacks Rank #4 and an Earnings ESP of 0.00%.
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