U.S. Markets closed

4 Medical Product Stocks Set to Beat This Earnings Season

Urmimala Biswas

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 Jul 24, earnings increased 18.9% from the same period last year on 8.9% higher revenues, with 100% of the companies beating earnings estimates and 66.7% surpassing revenue estimates.

Per the report, total earnings of the sector are expected to be up 3.6% on 5.2% higher revenues.

The Zacks Medical Product sector, which has rallied 18% year to date, is one of the attractive areas right now. It currently carries a Zacks Sector Rank in the top 26% (67 out of 256 industries).

Factors Driving Q2 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 drive growth for Medtronic in the to-be-reported quarter too.

Boston Scientific BSX, which has already released its second-quarter results, once again demonstrated strong top-line performance in emerging markets. LOTUS Edge, VICI stent and WATCHMAN FLX approval in Europe and Sentinel’s enhanced supply are expected to help the company to continue with its emerging market growth trend in the upcoming quarters as well.

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 should reflect in the second-quarter performance of the constituent companies. In the second quarter, Stryker’s SYK Mako robot sales and increased robot utilization across both joint applications drove implant share gains significantly.

‘Modernize 510(k)’ a Growth Factor: In February 2019,the FDA provided its final guidance to ‘modernize’ the 510(k)-clearance pathway. It is a premarket submission made by MedTech companies to the FDA to validate a medical device as safe and effective. This is likely to favorably impact second-quarter results to some extent. The companies that have already benefited from this modernization approach are Abbott, 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. 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 show on Medical Instruments companies’ second-quarter results. For instance, Varian Medical (VAR) reported third-quarter fiscal 2019 results on Jul 24. Its total operating earnings declined $15 million due to the tariff dispute.

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 routine fairly simple for investors.

Investors can narrow down the choices by 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, chances of a positive earnings surprise are as high as 70%.

Earnings ESPprovides 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 four stocks that are expected to beat earnings estimates in this reporting cycle.

GW Pharmaceuticals GWPH: Following the U.S.-commercial launch of Epidolex last November as the first cannabis-derived drug for the treatment of patients with Lennox-Gastaut syndrome (LGS) and Dravet syndrome, there has been no turning back for GW Pharmaceuticals. Over the last few months, the company has witnessed solid new patient enrollment for the medicine and also a huge number of physicians are recommending the same in their prescriptions.

GW Pharmaceuticals PLC Price and EPS Surprise

GW Pharmaceuticals PLC Price and EPS Surprise

GW Pharmaceuticals PLC price-eps-surprise | GW Pharmaceuticals PLC Quote

GW Pharmaceuticals is scheduled to report third-quarter fiscal 2019 results on Aug 6.

The company has a Zacks Rank #3 and an Earnings ESP of +1300%.

Canopy Growth CGC: Similar to the last reported quarter, Canopy Growth is expected to gain from an expanding patient base in the Canadian medical cannabis market. Further, the launch of Spectrum Cannabis color-coded soft gels, which provide continuous and discrete dosing formats, is projected to boost the top line in the to-be-reported quarter.

Canopy Growth Corporation Price and EPS Surprise

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 first quarter of fiscal 2019 on Aug 13.

The combination of Canopy Growth’s Zacks Rank #3 and Earnings ESP of +24.56% 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.

Evolus EOLS:  This is a performance beauty company with a customer-centric approach focused on delivering breakthrough products. Earlier this year, the company got FDA approval for its Jeuveau (prabotulinumtoxinA-xvfs), the first and only neurotoxin dedicated exclusively to aesthetics and manufactured in a state-of-the-art facility using Hi-Pure technology.

Evolus, Inc. Price and EPS Surprise

Evolus, Inc. Price and EPS Surprise

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

Evolus is expected to report second-quarter 2019 results on Aug 1.

Evolus has a Zacks Rank #2 and an Earnings ESP of +27.75%.

Dexcom (DXCM): DexCom has a sizable international market attributable to the demographic trends and lifestyle in countries outside the United States and Europe. To that end, we expect the company to deliver higher international revenues in the to-be-reported quarter. With respect to DexCom’s FDA-cleared CGM system — the DexCom G4 Platinum — has contributed to the company’s top line significantly and we expect to see the same in the to-be-reported quarter’s results.

DexCom, Inc. Price and EPS Surprise

DexCom, Inc. Price and EPS Surprise

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

Dexcom is slated to report second-quarter 2019 results on Jul 31.

The company sports a Zacks Rank #1 and has an Earnings ESP of +70.59..

Today's Best Stocks from Zacks

Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.

This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.

See their latest picks free >>

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
Stryker Corporation (SYK) : Free Stock Analysis Report
Boston Scientific Corporation (BSX) : Free Stock Analysis Report
Medtronic PLC (MDT) : Free Stock Analysis Report
GW Pharmaceuticals PLC (GWPH) : Free Stock Analysis Report
Evolus, Inc. (EOLS) : Free Stock Analysis Report
Canopy Growth Corporation (CGC) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research