U.S. markets close in 3 hours 15 minutes

3 Medical Product Stocks Set to Beat This Earnings Season

Urmimala Biswas

Medical Products companies, within the broader Medical sector, are expected to come up with lackluster earnings reports this time around. In fact, most U.S. companies across various industry domains are expected to have faced huge losses in the first quarter due to the coronavirus crisis, which brought worldwide manufacturing to a halt and disrupted the supply chain.

However, on an encouraging note, the medical space seems to have been more resilient compared to others, thanks to continued strong business generation from emergency medical procedures that have been unavoidable even amid the pandemic. Also, this sector’s several new COVID-19-related healthcare supports have shown huge prospects, thus contributing to Q1 results.

Per the latest Earnings Preview, Medical is one of the five among the 16 major Zacks sectors that are set to report year-over-year earnings growth.

Medical sector earnings are expected to be up 2.5%. However, the earnings projections indicates a significant sequential decline from the fourth-quarter 2019 scorecard, which reflected earnings growth of 7.9%.

The Zacks Medical Product sector has witnessed an increase of 1.3% in the past year. It currently carries a Zacks Sector Rank in the top 13% (34 out of 256 industries).

Major Trends for Medical Product Stocks in Q1

COVID-19 Tests Generate Revenues: As a response to the public health crisis, the U.S. government declared a public conditions health emergency earlier this year and authorized the emergency use of IVD tests for the diagnosis of COVID-19. Authorizations for emergency PPE and emergency ventilator and ventilator substitutes followed eventually. In February, the FDA made a flexible decision to allow certain certified laboratories to urgently begin development of validated coronavirus diagnostics, subject to certain conditions..

Coming to Abbott’s ABT first-quarter results released on Apr 16, its Molecular Diagnostics, Rapid Diagnostics and Point of Care Diagnostics segments registered revenue growth on an organic basis. This can be attributed to the launch of two COVID-19 tests in March — the ID NOW COVID-19 molecular test (the fastest available molecular point-of-care test delivering results within 13 minutes and positive results in five minutes) and the RealTime SARS-CoV-2 molecular test, which runs on Abbott's m2000 RealTime System at hospitals and reference laboratories.

Similarly Quest Diagnostics DGX (that released its first-quarter numbers on Apr 22) launched a COVID-19 test service on Mar 9. Per the company’s Apr 1 update, through the end of the first quarter, it performed and reported results of more than 400,000 COVID-19 tests to providers and patients across the United States. This strongly contributed to the company’s first-quarter result.

We expect to see similar trend in revenue generation for diagnostic testing laboratory stock LabCorp LH and ventilator provider ResMed when they report their results on Apr 29 and Apr 30, respectively.

Emergency Procedures Gain Traction: Since the beginning of February, the healthcare industry all over the globe, started to postpone elective healthcare activities to focus on COVID-19 treatments. However, emergency healthcare support could not be postponed. Companies that provide renal care, cardiovascular support, oncology support and diabetes management products are accordingly expected to have maintained their usual growth trend overall despite slight disruption.

Global Supply Chain Disruption Mars Growth in Q1

Apart from the Medical product companies, which have been working on coronavirus-related treatment/research/and or health support, or providing non-elective cares, the rest are however expected to have performed dismally on lower product demand in the first quarter. Most of these device makers are likely to have gained from innovations, strategic consolidations and emerging market expansion till the time the COVID-19 onslaught was restricted to China

However, shares of these companies have been declining after that. The coronavirus outbreak has massively disrupted the global supply chain. Hence, companies with a huge international base, are expected to have recorded a significant fall in their quarterly revenues.

Boston Scientific BSX, which has a strong global base, is expected to have witnessed a notable reduction in product demand across its core business segments (due to the massive disruption in the global supply chain and postponement of non-COVID 19 healthcare activities). The company is scheduled to report first-quarter 2020 results on Apr 29.

Zacks Methodology

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 fairly simple.

We are focusing on stocks that have the combination of a positive Earnings ESP a 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.

Haemonetics Corporation HAE: The company is expected to have benefited from strong growth in Plasma franchise amid the healthcare crisis in fourth-quarter fiscal 2020. Under Hospital business, Hemostasis Management is expected to see strong growth as well.

Haemonetics is scheduled to report fiscal fourth-quarter results on May 5.

The company has an Earnings ESP of +2.76% and a Zacks Rank #3.

Haemonetics Corporation Price and EPS Surprise

Haemonetics Corporation Price and EPS Surprise

Haemonetics Corporation price-eps-surprise | Haemonetics Corporation Quote

Dexcom, Inc. DXCM: The company’s continuous glucose monitoring (CGM) business for diabetes management, being part of essential healthcare care support, is expected to have done well. The company’s strong product portfolio and collaborative agreements with several companies were key positives in Q1.

The company is scheduled to release results for the first quarter of 2020 on Apr 28.

The combination of Dexcom’s Earnings ESP of +143.9% and a Zacks Rank #2 raises the possibility of a positive earnings surprise in the to-be-reported quarter.

DexCom, Inc. Price and EPS Surprise

DexCom, Inc. Price and EPS Surprise

DexCom, Inc. price-eps-surprise | DexCom, Inc. Quote

Perrigo Company plc PRGO: The company has a presence in the over-the-counter market and sells infant formulas to store brand market, generic extended topical prescription (Rx) products and specialty pharmaceutical drugs. These businesses should have remained uninterrupted during the first quarter.

Perrigo is scheduled to report its first-quarter 2020 results on Apr 30.

Perrigo has an Earnings ESP of +5.6% and a Zacks Rank #3.

Perrigo Company plc Price and EPS Surprise

Perrigo Company plc Price and EPS Surprise

Perrigo Company plc price-eps-surprise | Perrigo Company plc Quote

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.

Click here for the 6 trades >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Quest Diagnostics Incorporated (DGX) : Free Stock Analysis Report
 
Haemonetics Corporation (HAE) : Free Stock Analysis Report
 
DexCom, Inc. (DXCM) : Free Stock Analysis Report
 
Abbott Laboratories (ABT) : Free Stock Analysis Report
 
Boston Scientific Corporation (BSX) : Free Stock Analysis Report
 
Laboratory Corporation of America Holdings (LH) : Free Stock Analysis Report
 
Perrigo Company plc (PRGO) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research