The earnings season has seen releases from 55 members of the S&P 500 index till Jan 18.
Performances of these index participants indicate a 16.9% increase in total earnings on 9% higher revenues. Per the latest Earnings Preview, the beat ratio is impressive with 70.9% companies surpassing bottom-line expectations and 56.4% outperforming on the top-line front.
The fourth quarter of 2018 is expected to register healthy double-digit percentage growth for eight of the 16 Zacks sectors. By the end of the season, earnings of the S&P 500 companies, as a whole, are expected to grow 10.7% from the year-ago quarter on a 5.3% rise in revenues.
Earnings Expectations From the Medical Sector
Medical — one of the 16 Zacks sectors — is expected to record solid earnings growth this reporting cycle. For the quarter under review, the projected earnings growth rate for the sector is 7.2% on 6.1% revenue growth.
The MedTech companies, within the broader Medical sector, are likely to put up a superb show this earnings season. Favorable exposure to AI-based applications, medical mechatronics, robotics, cloud computing, big-data applications, gene editing, DNA sequencing and EHRs have favored the MedTech space. Currently, these companies are benefiting from R&D innovation courtesy of the 2.3% Medical Device tax abolition earlier in 2018.
However, the U.S. MedTech industry has confronted short-term hurdles pertaining to the trade war with China. According to a survey conducted by the Medical Imaging & Technology Alliance (MITA), tariffs will cost the MedTech companies nearly $138 million every year.
What Our Model Says
According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Conversely, Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided, especially if the companies are witnessing negative estimate revisions. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Considering the above factors, we take a look at the two MedTech behemoths that are set to release results on Jan 24.
Intuitive Surgical Inc (ISRG - Free Report) expects steady growth at the Instruments and Accessories segment in the fourth quarter of 2018. Revenues from other segments are also likely to bolster the company’s performance in the to-be-reported quarter.
The Zacks Consensus Estimate for fourth-quarter revenues is pinned at $917 million, indicating a year-over-year increase of 13.8%. The same for earnings is pegged at $2.65, reflecting a 4.3% decline year over year. In the trailing four quarters, the company exceeded the consensus mark, the average being 13.2% (read more: Will Instruments Fuel Intuitive Surgical Q4 Earnings?).
Our model predicts a positive earnings surprise by Intuitive Surgical this season. This is because the stock has an Earnings ESP of +1.34% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Intuitive Surgical, Inc. Price and EPS Surprise
ResMedInc (RMD - Free Report) ) is expected to gain from a strong performance on the domestic as well as international front in the second quarter of fiscal 2019.
For the quarter to be reported, the Zacks Consensus Estimate for earnings is pegged at 93 cents, down 7% year over year. The same for revenues is pinned at $667.1 million, mirroring an increase of 11% year over year.
The company has a Zacks Rank #3 and an Earnings ESP of 0.00%, a combination that hints at slim chances of a beat this reporting cycle.
ResMed Inc. Price and EPS Surprise
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?
From more than 4,000 companies covered by the Zacks Rank, these 10 were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 – 2017, they soared far above the market's +126.3%, reaching +181.9%.
This year, the portfolio features a player that thrives on volatility, an AI comer, and a dynamic tech company that helps doctors deliver better patient outcomes at lower costs.
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