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4 Medical Product Stocks Likely to Top Q4 Earnings Estimates

Zacks Equity Research

Carrying forward the momentum achieved in the initial months of 2018, the back half of the year also proved to be rewarding for the global medical products space in terms of research and development (R&D). Starting from invention of the artificial pancreas, human-brain pacemaker, an electronic skin that displays vital signs of the body, needle-free injections and many more, the medical products fraternity was in the limelight this period.

In November, the FDA attempted to modernize the 510(k) clearance pathway, which accounts for the majority of FDA device reviews. According to a December article published in Investing News, “the changes are meant to create a safer product for patients while holding companies accountable for any safety discrepancies, all while holding on to the FDA’s gold standard for safety.” Prior to that, the FDA had approved a gene therapy for the treatment of inherited retinal disease.

Considering the positive backdrop, it will be interesting to see how the sector players are poised ahead of their earnings release.

What’s Benefiting Medical Device Stocks?

Going by a CISION report, the United States is the largest Medical Product market in the world, raking in more than $180 billion in revenues a year. Thus, it has been a very profitable investment space of late.

The Medical Product space has been benefiting from favorable consumer behavior, growing prevalence of minimally-invasive surgeries, demand for liquid biopsy tests, use of IT for quick and improved patient care and the shift from a payment system to a value-based model.

The Tax Cuts and Jobs Act, which slashed corporate tax rates to 21% from the earlier 35%, will continue to benefit industry players.. This apart, the bipartisan two-year suspension of the Medical Device tax earlier in 2018, which imposed a 2.3% excise tax on MedTech manufacturers, has been a huge relief. Both the developments are expected to boost hiring and investment among the U.S.-based medical-product manufacturers. This should get reflected through the fourth-quarter performances of the industry players.

The Weak Spot

While long-term growth prospects are quite encouraging, the ongoing trade tiff between the United States and China remains a major concern for most investors interested in the medical instrument space. According to a survey conducted by the Medical Imaging & Technology Alliance (MITA), the tariffs will cost medical product companies nearly $138 million every year. This may dampen medical product companies’ fourth-quarter performance.

Zacks Methodology

Given the existence of numerous players in the Medical-Product 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 for investors.

One can narrow down the choices by focusing specifically on medical products stocks (under the Medical-Device subcategory) that have the desirable combination of a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

Our research shows that for stocks with this combination, chances of a positive earnings surprise are significantly as high as 70%.

Earnings ESP is our proven methodology to determine stocks with maximum chances todeliver an earnings surprise. This key element provides the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.

Here we present four stocks poised to beat on earnings this reporting cycle.

Our Picks

MacroGenics, Inc. MGNX: The company has achieved major milestones with Margetuximab in the SOPHIA breast cancer trial. The company’s sturdy improvement in the Phase 1b/2 gastric cancer study is encouraging. Management also announced clinical advancement of MGA012 platform for its potential in treating solid tumor cancers. Additionally, the company’s two bispecific DART molecule programs are underway.

MacroGenics, Inc. Price and EPS Surprise

MacroGenics, Inc. Price and EPS Surprise | MacroGenics, Inc. Quote

The company is expected to report fourth-quarter 2018 earnings on Feb 26.

We expect the company to beat on earnings as it has a Zacks Rank #2 and an Earnings ESP of +27.79%.

Chimerix, Inc. CMRX: This biopharmaceutical company develops and markets medicines that improve outcomes for immunocompromised patients. Chimerix's proprietary lipid conjugate technology and compound library have produced brincidofovir (BCV, CMX001); CMX157, which was licensed to ContraVir Pharmaceuticals; and CMX521, the first clinical-stage direct-acting antiviral for the treatment and/or prevention of norovirus.

Chimerix, Inc. Price and EPS Surprise

Chimerix, Inc. Price and EPS Surprise | Chimerix, Inc. Quote

Chimerix is expected to report fourth-quarter fiscal 2018 results on Mar 7.

The company is likely to beat the Zacks Consensus Estimate as it has a Zacks Rank #2 and an Earnings ESP of +13.89%.

NanoString Technologies, Inc. NSTG: The company provides life science tools for translational research and molecular diagnostic products. It recently provided preliminary operational and financial results for the fourth quarter and fiscal 2018. Total revenues for the fourth quarter of 2018 are expected to be approximately $30 million. Total revenues fiscal 2018 are expected to be in the range of $106 to $107 million.

NanoString Technologies, Inc. Price and EPS Surprise

NanoString Technologies, Inc. Price and EPS Surprise | NanoString Technologies, Inc. Quote

The company is expected release results for the fourth quarter of fiscal 2018 on Mar 6.  

NanoString Technologies’ Zacks Rank #1 and an Earnings ESP of +4.64% 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.

Nxstage Medical, Inc. NXTM: The company develops and markets innovative products for the treatment of end-stage renal disease (ESRD) and acute kidney failure.

NxStage Medical, Inc. Price and EPS Surprise

NxStage Medical, Inc. Price and EPS Surprise | NxStage Medical, Inc. Quote

Nxstage Medical will report fourth-quarter 2018 figures on Feb 15.  

We believe this company too is poised to trump the Zacks Consensus Estimate as it has the perfect combination of a Zacks Rank of 3 and an Earnings ESP of +33.33%.

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