3 MedTech Stocks Likely to Beat Estimates This Earnings Season
So far, the fourth-quarter reporting cycle has displayed a year-over-year improvement for the MedTech companies within the broader Medical sector. The handful of MedTech stocks that have released their earnings so far showed market share gain within their base businesses through the months of the fourth quarter compared with 2021, following three years of COVID-induced debacle. Amid the ongoing macroeconomic headwind, this was solely due to the reduction in the severity of COVID-19 despite the emergence of new virus variants in limited geographies.
Even if we consider the performance on a sequential basis, the Q4 performance of the majority of the companies is likely to have improved. In this regard we note that, in the last-reported third quarter, the MedTech players witnessed rising raw material costs and other expense pressure, thanks to the global surge in the inflationary situation. Added to this, staffing shortages and supply-chain hazards severely dampened the growth process. Although market watchers expected a similar or a graver macroeconomic situation to hit the fourth-quarter performance of the sector hard, the sequentially better performance so far, in a way, is a breather for investors.
Here we talk about three stocks, Exact Sciences Corporation EXAS, Medtronic plc MDT and Integra LifeSciences IART that are expected to beat earnings estimates in the ongoing reporting cycle.
Two Major Q4 Trends
The Q4 reporting cycle depicted a sequential improvement in base sales volumes. This was attributed to a significant reduction in COVID-led severity globally. There has been a significant rebound in non-COVID and elective legacy businesses of the MedTech companies. Also, the fourth-quarter results of the diagnostic testing companies are expected to reflect a sequential rise in testing demand, thanks to rising new cases in selected geographies.
However, a contrasting trend is also evident. Considering the deteriorating trade situation, with the global inflationary pressure leading to an extremely tighter situation related to raw material and labor cost as well as freight charges, we expect fourth-quarter results to be disappointing in comparison to the year-ago period. In this regard, IMF, during the fourth quarter provided its World Economic Outlook Update. There it noted thata tentative recovery in 2021 was followed by increasingly gloomy developments in 2022. IMF specifically addressed the ongoing cost of living crisis, tightening financial conditions in most regions, Russia’s invasion of Ukraine, and the lingering COVID-19 pandemic, all of which have been weighing heavily on the MedTech sector’s business performance.
The IMF update noted that global growth is expected to slow down from 6% in 2021 to 3.2% in 2022. If we exclude the global financial crisis and pandemic phase, this marks the weakest growth profile since 2001. Accordingly, industry players are expected to have collectively faced a more severe setback in terms of logistical challenges and increasing unit cost in the fourth quarter, resulting in corporate profitability cuts.
Q4 Scorecard Thus Far
Per the latest Earnings Preview, 28.6% of the companies in the broader Medical sector, constituting nearly 51.2% of the sector’s market capitalization, have already reported earnings. Of these, 81.3% beat in terms of earnings while 62.5% beat on revenues. Earnings increased 3.6% year over year on 7.6% higher revenues. Overall, fourth-quarter earnings for the Medical sector are expected to decline 9% despite a 4.3% sales increase.
Abbott ABT and Quest Diagnostics DGX are a few companies whose base-business performance registered a strong recovery rate.
In Q4, Abbott’s Established Pharmaceuticals sales improved 7.9% on an organic basis, backed by strong growth in several geographies, including India, China, Brazil and Mexico, and across several therapeutic areas, including cardiometabolic, women's health and central nervous system/pain management. Diabetes Care reported organic growth of 17.4% year over year, led by FreeStyle Libre, which contributed $1.1 billion of revenues in the reported quarter. Structural Heart sales rose 13% and Heart Failure sales improved 5.9% year over year organically.
However, rising costs and expenses in the face of record inflationary pressure put huge pressure on margins for the company.
Quest Diagnostics’ legacy base business (excludes COVID-19 testing) revenues were up 6.3% year over year. However, COVID-19 testing revenues nosedived 74.6% in the quarter.
However, pressure on volume, owing to a difficult macroeconomic situation and pricing, constitutes the primary risk for Quest Diagnostics. Total volume, measured by the number of requisitions, was down 11.2% year over year in the fourth quarter.
Zacks Methodology
Given the high degree of diversity in the Medtech 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 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, the chances of an 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 MedTech stocks that are expected to beat earnings estimates in this reporting cycle.
Exact Sciences: Exact Sciences’ Screening segment’s fourth-quarter performance is expected to have benefited from a continued increase in Cologuard volume. Per the last-reported quarter's earnings call, roughly 292,000 healthcare providers ordered Cologuard since its launch, with 10,000 new orders received in the third quarter. Moreover, the company added 65,000 new ordering healthcare providers, which is expected to have benefited fourth-quarter performance.(Read more: Exact Sciences to Post Q4 Earnings: What's in Store?)
Exact Sciences’ Earnings ESP of +23.64% and a Zacks Rank #2 raise the possibility of an earnings surprise in the to-be-reported quarter.
Exact Sciences is slated to release results for the fourth quarter of fiscal 2022 on Feb 21.
Exact Sciences Corporation Price and EPS Surprise
Exact Sciences Corporation price-eps-surprise | Exact Sciences Corporation Quote
Medtronic: Medtronic has been witnessing an adverse trend of procedure volume across its core business over the past few quarters, impacted by the choppy macroeconomic scenario globally in the form of supply chain disruption, a severe shortage of health professional labor and a record level of inflationary pressure. The full impact of inflation with increased freight expense is expected to have been realized in Q3 of fiscal 2023. (Read more: What's in the Cards for Medtronic in Q3 Earnings?)
Medtronic is scheduled to release third-quarter fiscal 2023 results on Feb 21.
Medtronic has an Earnings ESP of +1.47% and a Zacks Rank #3.
Medtronic PLC Price and EPS Surprise
Medtronic PLC price-eps-surprise | Medtronic PLC Quote
Integra LifeSciences: Integra LifeSciences is expected to have seen healthy demand for its industry-leading products within Codman Specialty Surgical (CSS). The segment is expected to have benefited from the growing market acceptance of the company’s global neurosurgery line-ups, including CSS management and neuromonitoring. Within CSS management, Integra has been experiencing growth banking on strong market adoption of programmable valves and advanced energy (CUSA Capital and related disposables). Neuromonitoring sales are expected to have gained traction too on new product launches.
Integra LifeSciences is scheduled to release fourth-quarter 2022 results on Feb 22.
Integra LifeSciences has an Earnings ESP of +3.77% and a Zacks Rank #3.
Integra LifeSciences Holdings Corporation Price and EPS Surprise
Integra LifeSciences Holdings Corporation price-eps-surprise | Integra LifeSciences Holdings Corporation Quote
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Abbott Laboratories (ABT) : Free Stock Analysis Report
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Exact Sciences Corporation (EXAS) : Free Stock Analysis Report
