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Will Stryker Miss Earnings this Quarter?

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Stryker Corp. (SYK - Free Report) is set to report its first-quarter 2013 results after the market closes on Wednesday, Apr 24. Let’s see how things are shaping up prior to the announcement.

In the last quarter, the orthopedic devices major posted a 0.88% positive earnings surprise. Higher domestic sales and cost containment measures were largely offset by weak international and capital equipment sales.

Factors to Consider this Quarter

Stryker, with a market-cap of $24.41 billion, is one of the largest medical device manufacturers operating in the global orthopedic market. Its well-diversified product portfolio, expanding foothold in emerging markets along with acquisitions are expected to drive future growth. The performance of the core Reconstructive business, which has showed signs of a turnaround recently, is vital  for the company.

However, we are concerned about the impact of the warning letter from the U.S. Food and Drug Administration (“FDA”) to Stryker’s Instruments division as well as other product recalls, which are plaguing the company. Additionally, other challenges such as soft international sales, particularly in Europe, and tough hospital capital budgets pose major headwinds.

Earnings Whispers?

Our proven model does not conclusively show that Stryker is likely to beat earnings estimates this quarter. That is because a stock needs to have both a positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method) as well as a Zacks Rank of #1, 2 or 3 for this to happen. This is not the case here as you will see below.

Zacks Earnings ESP:  The Most Accurate Estimate stands at $1.00, while the Zacks Consensus Estimate is pegged at $1.01. This comes to a difference of -0.99%.

Zacks Rank #3 (Hold): Stryker’s Zacks Rank #3 (Hold) lowers the predictive power of ESP. The Zacks Rank #3 together with -0.99% earnings ESP makes surprise prediction difficult.

Moreover, we caution against stocks with Zacks Ranks of #4 and #5 (Sell rated stocks) before going into the earnings announcement, especially when the company is experiencing negative estimate revisions.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows they have the right ingredients to post an earnings beat this quarter:  

Coventry Health Care Inc. , Earnings ESP of +3.80% and a Zacks Rank #2 (Buy)

Haemonetics Corporation (HAE - Free Report) , Earnings ESP of +2.17% and a Zacks Rank #3 (Hold)

Covidien plc , Earnings ESP of +0.91% and a Zacks Rank #3 (Hold)

In-Depth Zacks Research for the Tickers Above

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