The Medical Products companies within the broader Medical sector are likely to put up an impressive show this earnings season. Focus on research and development is a key growth strategy for the companies in this space. Currently, these industry players are benefiting from the R&D (research and development) innovation, courtesy of the temporary repeal of 2.3% Medical Device tax in 2018.
The past few months have been remarkable for the medical device space in terms of R&D. Riding high on the path-breaking inventions like wireless brain sensors, Bluetooth-enabled smart inhalers, artificial pancreas, human-brain pacemaker, electronic skin that displays vital signs of the body, needle-free injections, precision medicine and many more, the medical device space has gone from strength to strength.
Solid growth in the emerging markets is expected to be an added positive this reporting cycle. Backed by the rising medical awareness and economic prosperity, emerging economies are witnessing strong demand for the medical products. Notably, an aging population, relaxed regulations, cheap skilled labor, increasing wealth and the government focus on healthcare infrastructure make these markets a happy hunting ground for the global medical device players.
However, the U.S. Medical Products industry has confronted short-term hurdles pertaining to the trade war with China. Per a Medical Imaging & Technology Alliance (MITA) survey, tariffs will cost the companies nearly $138 million every year.
In the wake of the levy of U.S. tariff and the Chinese retaliation to counter the same, the medical product fraternity is facing a huge bottom line pressure (especially on the companies with production in China). However, the latest update on the U.S. exemptions of some medical devices from 25% tariff alongside both countries’ efforts to temporarily resume trade negotiations comes as a relief for investors.
The latest Earnings Preview predicts the Medical sector to deliver positive earnings surprises this time around (as of Jul 19). For the quarter under review, earnings growth rate is projected at 1.7% on 4.8% revenue growth.
What Our Model Says
The proven Zacks model clearly indicates that a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has good chances of beating estimates if it also has a positive Earnings ESP. Conversely, a 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 following five Medical Products behemoths that are set to release earnings results on Jul 25.
Stryker Corporation (SYK - Free Report) : In second-quarter 2019, the company is expected to gain traction from strength in the MedSurg segment. This business is likely to deliver a sturdy performance, primarily driven by anticipated growth across its aforementioned three subsegments. The segment is forecast to deliver considerable worldwide organic growth in the to-be-reported quarter, fueled by a better-than-expected uptick in instruments. Overall, Stryker is likely to have displayed broad-based growth across its divisions and regions. (read more: Will Core MedSurg Segment Drive Stryker's Q2 Earnings?).
Stryker has a Zacks Rank #2, which increases the predictive power of ESP. It also has an Earnings ESP of +0.24%, together which a likely positive surprise is indicated for the stock this reporting cycle. You can see the complete list of today’s Zacks #1 Rank stocks here.
Baxter International Inc. (BAX - Free Report) : The company is expected to see second-quarter revenue growth, led by a robust sale of Spectrum IQ and Evo IQ infusion pumps. This apart, a few strategic alliances signed by Baxter are likely to impact the second-quarter results. On the flip side, headwinds related to Baxter’s U.S. business and the exit of the in-center hemo dialysis Bloodline business are feared to hurt the core Renal Care arm. (read more: Baxter to Report Q2 Earnings: What's in the Offing?).
Baxter has an Earnings ESP of 0.00% and a Zacks Rank #3, a combination that makes surprise prediction difficult.
Laboratory Corporation of America Holdings (LH - Free Report) or LabCorp: LabCorp’s underlying core businesses are putting up a stable performance over the last few quarters. Within Diagnostics, the company expects to generate revenues in the second quarter of 2019, banking on the strategic execution of its in-network laboratory collaboration with UnitedHealthcare, Horizon NJ and Aetna. Within Covance Drug Development, LabCorp deepens its focus on driving profitable growth in the second quarter through expanded solutions and enhanced operational capabilities. (read more: Will LabCorp's Q2 Earnings Gain From Overall Growth?).
LabCorp’s Earnings ESP of +3.56% and a Zacks Rank of 2 make us reasonably confident about an earnings beat this time around.
ResMed Inc. (RMD - Free Report) : The company is expected to register strong revenue growth across all geographical regions in its fourth-quarter fiscal 2019, attributable to solid results from Software-as-a-Service businesses as well as new mask products and devices. Within Software-as-a-Service, Brightree service offerings and the buyouts of MatrixCare and HEALTHCAREfirst should firmly contribute to the top line.
The Zacks Consensus Estimate for revenues in the fiscal fourth quarter is pinned on $701.7 million, implying a 12.5% improvement from the year-ago reported figure. The same for earnings is pegged at 92 cents, suggesting a 3.2% dip from the prior-year reported number. In the trailing four quarters, the company exceeded the consensus mark, the average being 4.51%.
ResMed’s Earnings ESP of 0.00% and a Zacks Rank of 3 together make surprise prediction difficult.
West Pharmaceutical Services, Inc. (WST - Free Report) : The company is a manufacturer of packaging components and delivery systems for injectable drugs and healthcare products. Headquartered in Exton, PA, the company’s wide business network spreads across North and South America, Europe, Asia and Australia.
The Zacks Consensus Estimate for second-quarter 2019 revenues is pinned on $462.8 million, indicating a 3.4% ascent from the year-earlier reported figure. The same for earnings stands at 72 cents, suggesting a 2.86% climb from the year-ago reported number. In the preceding four quarters, the company outpaced the consensus mark, the average being 7.06%.
West Pharmaceutical’s combination of an Earnings ESP of -0.70% and a Zacks Rank #4 decreases the odds of a positive surprise prediction this earnings season.
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