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Henry Schein (HSIC) Q3 Earnings to Show Growth in All Lines

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Henry Schein, Inc. HSIC is expected to report third-quarter 2017 results on Nov 1.

Last quarter, the company delivered a positive earnings surprise of 1.2%. Encouragingly, Henry Schein’s earnings surpassed the Zacks Consensus Estimate in all of the past four quarters, at an average of 2.8%.

Let’s see how things are shaping up prior to this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Henry Schein is likely to beat earnings because it has the perfect combination of two key ingredients.

Zacks ESP:  Henry Schein has an Earnings ESP of +1.23% as the Most Accurate estimate is 91 cents, while the Zacks Consensus Estimate is lower at 90 cents. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Henry Schein currently carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates.

Conversely, 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.

The combination of Henry Schein’s Zacks Rank #3 and +1.23% ESP makes us reasonably confident of an earnings beat.

Henry Schein, Inc. Price and EPS Surprise

Factors at Play

Henry Schein’s second-quarter 2017 results were quite impressive, recording growth across all four segments – Dental, Animal Health, Medical and Technology and Value-Added Services. Geographically, the company gained traction in both North America and overseas. We expect a similar trend in the third quarter as well.

The company’s strategy to expand digital dentistry globally is also encouraging. We are also upbeat about management’s expectations to witness at least low single-digit growth in North America’s dental consumable merchandise market in the second half of 2017. The Zacks Consensus Estimate for third-quarter total revenues of $3.049 billion reflects an increase of 6.4% from the year-ago quarter.

The company is currently banking on digital dentistry, which is part of its strategic plan. Henry Schein is busy promoting digital workflows for general dentistry as well as dental specialties. Beginning Sep 1, 2017, the company started selling the full range of Dentsply Sirona dental equipment across North America, including the leading CEREC CAD/CAM restoration system. This is expected to boost the top line to some extent.

Notably, during the second quarter, Henry Schein Animal Health opened a new National Distribution Service Center (NDSC) in Columbus’s Brookhollow neighborhood. This has helped the company operate as a complete solution provider for veterinary practices across the country. We expect this to boost the top line in the yet-to-be-reported quarter.

On the flip side, Henry Schein’s disappointing gross and operating margins over the past few quarters due to higher cost of sales and expenses is a matter of concern.

This apart, currency fluctuations and a tough competitive landscape add to the woes. Also, the entry of group purchasing organizations (GPOs) in the United States has intensified competition.

Overall, Henry Schein expects 2017 EPS in the range of $7.17-$7.30, reflecting 8-10% growth from the 2016 EPS figure of $6.61.

Stocks Worth a Look

Here are a few medical stocks worth considering as they have the right combination of elements to post an earnings beat this quarter.

The Cooper Companies, Inc. COO has an Earnings ESP of +0.43% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Thermo Fisher Scientific Inc. TMO has an Earnings ESP of +0.19% and a Zacks Rank #2.

Align Technology, Inc. (ALGN - Free Report) has an Earnings ESP of +0.74% and a Zacks Rank #3.

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