The second quarter has seen releases from 265 members in the S&P 500 cohort as of Jul 27. Per our latest Earnings Preview, performances of these index participants indicate a 23.6% increase in total earnings on 10.1% higher revenues. The beat ratio is also impressive with 80.8% companies surpassing bottom-line expectations and 72.1% outperforming on the top-line front.
By the end of the season, second-quarter earnings for the S&P 500 companies, as a whole, are expected to grow 23.6% from the year-ago quarter on 8.8% rise in revenues.
Earnings Expectations From Medical Sector
Medical — one of the broader sectors among the 16 Zacks sectors — is expected to record earnings growth this season. For the quarter under review, the projected earnings growth rate for the sector is 13.2% on 6.9% revenue growth.
What’s in Store for Medical Products Space?
Medical sector benefits from favorable consumer behavior, growing prevalence of minimally-invasive surgeries, demand for liquid biopsy tests, use of IT for ensuring quick and improved patient care along with the shift of the payment system to a value-based model.
Broadly speaking, the latest Tax Cuts and Jobs Act, which among many other changes, slashed corporate tax rates to 21% from the earlier 35%, buoying optimism among inventors.
The Medical Product space, which is part of the broader Medical sector, has been hogging a lot of limelight on certain favorable developments. Considering favorable demographics, changing market dynamics toward Artificial Intelligence (AI) & big-data applications, upbeat consumer sentiment and increased business investments, this sector has been going strong.
Further, the Senate’s decision to defer the implementation of an industry-wide excise tax for another couple of years, known as the Medical Device tax, has instilled confidence in investors. The tax will be put into effect on Jan 1, 2020. The bill also delays the so-called Cadillac tax, a 40% tax on employer insurance, until 2022.
Moreover, MedTech companies have been riding high on R&D innovation, growing consolidation and focus on emerging market.
Meanwhile, the ongoing trade war with China can be a serious threat to the U.S. Medical Products industry that sells about $4.7 billion worth of goods annually to China and imports a total of $5 billion of the same (an article by Christian B. Jones in Mondaq). Currently, President Trump has implemented $34 billion of import duties on Chinese goods and China imposed tariffs on U.S. exports of $3 billion.
Although it would be too early for these issues to affect second-quarter results, analysts believe that these might have some adverse effects on the earnings results of the Medical Product companies.
Against this backdrop, let’s take a look at the major Medical Product stocks scheduled to release results on Jul 31:
Per the quantitative Zacks model, stocks with the advantageous combination of a solid Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP have higher chances of beating estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Hologic, Inc’s (HOLX - Free Report) third-quarter fiscal 2018 results should reflect strength in its Diagnostics segment fueled by molecular diagnostics performance. An impressive performance by the Breast Health segment and the company’s solid global prospects are other tailwinds (read more: Molecular Diagnostics to Aid Hologic's Q3 Earnings).
For the quarter to be reported, the Zacks Consensus Estimate for revenues is pegged at $800.1 million, reflecting year-over-year decline of 0.7%. The Zacks Consensus Estimate for adjusted earnings per share is pegged at 56 cents, indicating a rise of 12% year over year. On average, the company delivered a positive earnings surprise of 4.1% over three of the trailing four quarters.
However, our quantitative Zacks model does not conclusively predict an earnings beat for the company, given the combination of a Zacks Rank of 4 (Sell) and an Earnings ESP of +0.18%.
Hologic, Inc. Price and EPS Surprise
NuVasive, Inc. (NUVA - Free Report) is expected to witness steady growth in second-quarter 2018 results, courtesy of international ventures. While this can significantly drive results, the integration synergy of the recently-completed buyout of SafePassage and the company’s expectations to see a 400-bps improvement in gross margin on increasing production in its Ohio manufacturing facility in the second half of 2018 are other tailwinds.
For the quarter under review, the Zacks Consensus Estimate for revenues is pegged at $276.1 million, reflecting a year-over-year rise of 5.9%. The Zacks Consensus Estimate for adjusted earnings per share is pinned at 58 cents, indicating an increase of 26.1% year over year. On average, NuVasive delivered a negative earnings surprise of 0.1% over the trailing four quarters.
However, our quantitative Zacks model does not conclusively predict earnings beat for the company, given the combination of a Zacks Rank #4 and an Earnings ESP of +2.49%.
NuVasive, Inc. Price and EPS Surprise
Quality Systems, Inc. is expected to gain from strength in NextGen population health analytics suite and NextGen mobile platforms in first-quarter fiscal 2019 results. Solid bookings growth and strong guidance for fiscal 2019 are other tailwinds.
For the quarter to be reported, the Zacks Consensus Estimate for revenues is pegged at $132.7 million, reflecting a year-over-year rise of 1.4%. The Zacks Consensus Estimate for adjusted earnings per share stands at 18 cents, indicating an increase of 5.9%. On average, Quality Systems delivered a positive earnings surprise of 16.7% over three of the trailing four quarters.
However, our quantitative Zacks model does not conclusively predict earnings beat for the company, given the combination of a Zacks Rank of 4 and an Earnings ESP of 0.00%.
Quality Systems, Inc. Price and EPS Surprise
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