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Can Medical Devices Strength Drive Abbott (ABT) Q2 Earnings?

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Abbott’s (ABT - Free Report) Medical Devices business has been going strong of late on solid sub-segmental performance.

We expect this strength to get reflected in second-quarter 2018 results, which are scheduled for release on Jul 18 before the market opens.

Click here to know how the company’s overall Q2 performance is expected to be.

Medical Devices in Focus

Abbott’s Medical Devices segment presently comprises the new Cardiovascular and Neuromodulation, Heart Failure, Electrophysiology, Structural Heart, Rhythm Management, Vascular businesses along with the Diabetes Care business.

Abbott Laboratories Price and EPS Surprise

Management expects mid-to-high single digit growth in Medical Devices second-quarter 2018 sales along with continued double-digit growth at certain sub-segments.

Consequently, the Zacks Consensus Estimate for Medical Devices revenues in the United States of $1.29 billion indicates a rise of 8.4% from the year-ago quarter. Internationally, our consensus estimate of $1.59 billion shows growth of 12.8%.

In the last quarter, sales improvement at the segment was driven by double-digit growth in Electrophysiology, Neuromodulation and Diabetes Care. Moreover, the company received approvals for a few products alongside achieving clinical trial milestones.

Let's see how things are shaping up within these sub-segments before the second-quarter results.

Electrophysiology, which accounted for 14.2% of Medical Devices revenues, has been gaining strongly from the recent launch of Confirm insertable cardiac heart monitor in the United States and Europe. 

Furthermore, continued uptake of EnSite Precision Cardiac Mapping System is expected to contribute strongly to the top line in the second quarter.

Abbott strengthened its position in the business with the successive receipt of FDA and CE Mark  for its new Advisor HD Grid Mapping Catheter. The company has launched the product in 20 countries since then and currently awaits the commercial launch in the United States.

The Zacks Consensus Estimate for Electrophysiology revenues of $408 million indicates an increase of 19% from a year ago. The company is expected to keep gaining strength in this business.

In the last reported quarter, the company witnessed impressive sales growth in the Heart Failure business on solid uptake of the recently launched HeartMate 3 system in the United States.

The Zacks Consensus Estimate for Heart Failure business revenues of $168 million indicates a rise of 5.7% from the year-ago quarter.

Providing an impetus to the Vascular (26.9% of total Medical Devices revenues) business in the United States, Abbott recently announced the receipt of FDA approval for XIENCE Sierra.

We encouragingly note, under the Vascular business, the company has seen a slew of developments with regard to its XIENCE Sierra coronary stent system. The company also achieved national reimbursement for XIENCE Sierra in May 2018. The company has also been getting positive responses for the XIENCE Sierra coronary stent system post its launch in Europe.

The Zacks Consensus Estimate for Vascular revenues of $740 million shows an improvement of 1.2% from the year-ago quarter.

The Structural Heart business has maintained an impressive top-line performance. In the last reported quarter, this business accounted for 10.7% of total revenues under the broader Medical Devices segment. The upside was led by continued double-digit growth of MitraClip.

In March, Abbott announced the receipt of national reimbursement in Japan for the same. Notably, in nearly 50 countries, more than 50,000 people have been treated with MitraClip.

Further, the company announced the receipt of FDA approval for the world’s smallest rotatable, bileaflet mechanical heart valve — Masters HP 15mm. With the approval, the company has expanded the Masters Series portfolio under Structural Heart.

All these positive developments are expected to boost top-line contributions from this sub-segment in the to-be-reported quarter. Our estimate for Structural Heart revenues of $293 million also indicates a rise of 9.3% from the year-ago quarter.

In Diabetes Care, international sales growth of 44.2% in the prior quarter was driven by Abbott’s FreeStyle Libre. The company recently initiated the launch of FreeStyleLibre in the United States as well.

Proceeding with initiatives to boost this arm, the company announced the availability of FreeStyle LibreLink app in Europe for use in smartphones (both iPhone and Android).

The Zacks Consensus Estimate for Diabetes Care revenues of $460 million indicates a surge of 36.9% from the year-ago quarter.

Meanwhile,we are upbeat about Abbott kick-starting 2018 with the receipt of FDA approval for magnetic resonance (MR)-conditional labeling for Quadra Assura MP Cardiac Resynchronization Therapy Defibrillator (CRT-D) and Fortify Assura Implantable Cardioverter Defibrillator (ICD) — two of the company's most widely-used high voltage medical devices.

The approvals come on the heels of recent MR-conditional labeling approvals for the Assurity MRI pacemaker, Ellipse ICD and associated MRI-compatible leads. This development is expected to boost the Rhythm Management business.

Our consensus estimate for Rhythm Management revenues of $564 million shows an improvement of 2.2% from a year ago.

Zacks Rank & Stocks to Consider

Abbott carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space are Genomic Health (GHDX - Free Report) , Align Technology, Inc. (ALGN - Free Report) and Stryker Corporation (SYK - Free Report) .

Genomic Health has an expected earnings growth rate of 187.5% for the current quarter. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Align Technology has a projected long-term earnings growth rate of 28.4% and a Zacks Rank of 2 (Buy).

Stryker has a projected long-term earnings growth rate of 9.7%. The stock carries a Zacks Rank of 2.

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