The Medical Products companies, within the broader Medical sector, have put up an impressive show so far this earnings season. Per the latest Earnings Preview, for the total number of S&P 500 members from the Medical sector that have reported till Oct 16, earnings increased 6.2% from the same period last year on 5.4% higher revenues, with 66.7% of the companies beating both earnings and revenue estimates.
Per the report, total earnings of the sector are expected to be up 0.3% on 5.4% higher revenues.
The Zacks Medical Product sector, which has rallied 12.4% year to date, is one of the attractive areas right now. It currently carries a Zacks Sector Rank in the top 44% (111 out of 256 industries).
Factors Likely to Drive Q3 Earnings
Performance of Emerging Economies: Growing medical awareness and economic prosperity have increased the uptake of medical instruments in the emerging economies in recent times. At Medtronic MDT, in the last-reported quarter, emerging market revenues represented 16% of total sales. The company’s strategies of public and private partnerships, optimization of the distribution channel, localization of R&D and manufacturing in certain emerging markets are expected to have benefited it in the to-be-reported quarter too.
Varian Medical Systems VAR has also been leveraging its capability to treat cancer in emerging economies that are slightly under-equipped to address the prevalence of the same. In the third quarter, Varian Medical strengthened presence in India by acquiring Cancer Treatment Services International for $283 million.
R&D in Focus: The past few months have been remarkable for the medical device space in terms of R&D. Riding on path-breaking inventions like second-generation surgical robotics, 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. This is expected to have been reflected in third-quarter performance of the constituent companies. In the third quarter (released on Oct 16), Johnson & Johnson’s JNJ Medical Device business registered accelerated growth banking on multiple product launches within Interventional Solutions. Abbott registered strong top-line growth in the recently-reported third quarter, banking on regulatory approvals for MitraClip, Alinity and FreeStyle Libre line.
'Modernize 510(k)' a Growth Factor: Earlier this year, the FDA provided its final guidance to 'modernize' the 510(k)-clearance pathway. It is a pre-market submission made by MedTech companies to the FDA to validate a medical device as safe and effective. This is likely to have favorably impacted performance of the players. The companies that have so far benefited from this modernization approach are Abbott ABT, NuVasive and Zimmer Biomet among others.
A Factor to Worry About
The U.S.-China trade war triggered a short-term downtrend in the Medical Instruments sector. Despite a series of recent exemptions (the last one being in September) by the U.S. Trade Representative (USTR), the entire community is worried about the impact that it may have had on the third quarter. Going by a Forbes report, "till, medical device makers say there is impact to the industry and the threat of more tariffs to come in an ongoing trade war with China is troubling, hitting various parts of the medtech industry."
According to a survey conducted by the Medical Imaging & Technology Alliance ("MITA"), tariffs will cost Medical Instruments companies nearly $138 million every year. This might get reflected in Medical Instruments companies’ third-quarter results.
Given the high degree of diversity in the Medical Products industry, finding the right stocks with the potential to beat estimates might be quite a daunting task.
However, our proprietary Zacks methodology, makes this routine fairly simple.
We are focusing on stocks that have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
Our research shows that for stocks with this combination, chances of a positive earnings surprise are as high as 70%.
Earnings ESP provides the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Here we present three stocks that are expected to beat earnings estimates in this reporting cycle.
ResMed Inc. RMD: ResMed is expected to have benefited from strong masks and accessories sales in first-quarter fiscal 2020. Continued expansion of Brightree, HEALTHCAREfirst and MatrixCareare expected have contributed to the company’s SaaS revenues.
ResMed Inc. Price and EPS Surprise
ResMed Inc. price-eps-surprise | ResMed Inc. Quote
ResMed is scheduled to report fiscal-first-quarter results on Oct 24.
The company has an Earnings ESP of +12.64% and a Zacks Rank #3.
Canopy Growth CGC: Similar to the last reported quarter, this time too Canopy Growth is likely to have gained from an expanding patient base in the Canadian medical cannabis market. New launches including the Spectrum Cannabis color-coded soft gels are projected to boost the top line in the to-be-reported quarter.
Canopy Growth Corporation Price and EPS Surprise
Canopy Growth Corporation price-eps-surprise | Canopy Growth Corporation Quote
The company is scheduled to release results for the second quarter of fiscal 2020 on Nov 13.
The combination of Canopy Growth’s Earnings ESP of +9.43% and a Zacks Rank #3 raises the possibility of a beat in the to-be-reported quarter. You can see the complete list of today’s Zacks #1 Rank stocks here.
Quanterix Corporation QTRX: This life sciences company develops and markets ultra-sensitive digital immunoassay platform. In the yet-to-be-reported quarter, the company is once again likely to have gained from strong top-line growth within its consumables and instruments businesses. Strong volume growth as well as productivity gain has been the catalyst behind Quanterix’s consistent performance in the recent times.
Quanterix Corporation Price and EPS Surprise
Quanterix Corporation price-eps-surprise | Quanterix Corporation Quote
Quanterix is expected to report third-quarter 2019 results on Nov 6.
Quanterix has a Zacks Rank #2 and an Earnings ESP of +12%.
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Johnson & Johnson (JNJ) : Free Stock Analysis Report
Abbott Laboratories (ABT) : Free Stock Analysis Report
Varian Medical Systems, Inc. (VAR) : Free Stock Analysis Report
ResMed Inc. (RMD) : Free Stock Analysis Report
Medtronic PLC (MDT) : Free Stock Analysis Report
Canopy Growth Corporation (CGC) : Free Stock Analysis Report
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