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4 Medical Products Stocks Poised to Beat This Earnings Season

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·7 min read
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So far, the third-quarter reporting cycle has displayed a year-over-year improvement for the Medical Products companies within the broader Medical sector. However, an industry-wide softness in the base business was seen through the summer months on the rapid rise of Delta variant cases of COVID-19. Accordingly, the results of the majority of medical device stocks so far have shown sequentially declining base business sales, following a strong rebound in the second quarter.

However, unlike the last year, despite the rapidly growing case count, the economy continued to open up in the Q3 months. Although slow, there was a recovery in procedure volume of non-elective and non-COVID medical care during this period.

Two Major Q3 Trends

The second quarter’s earnings of the medical product subindustry depicted strong rebound in base sales volumes, with most of the companies reaching their pre-pandemic business level. But the Q3 reporting cycle so far has shown a steep sequential decline in terms of the legacy base business of the companies. However, thanks to the fiscal and monetary stimulus and mass vaccination drive in the nation and outside, the process of reopening of the economy never stopped. The ongoing reporting cycle shows that hospital visits and hospital base businesses saw a temporary softness through July and August but revived strongly in September.

A contrasting trend was also evident. In Q3, as the Delta variant spread and COVID cases surged, particularly in the United States, demand for molecular diagnostic and rapid testing, as well as other COVID-19 support products, surged. In the second quarter, because of a significant drop in new COVID-19 cases, the companies had registered a rapid reduction in revenues within this line of business.

Q3 Scorecard Thus Far

Boston Scientific BSX, Quest Diagnostics DGX and Abbott ABT registered a sequential drop in Q3 in many of their businesses.

Boston Scientific’s Interventional Cardiology (IC) arm registered sales of $744 million in the third quarter. This compares unfavorably with the company’s Q2 revenues of $790 million within this segment. The company’s Rhythm and Neuro, as well as MedSurg businesses, also witnessed a similar trend. Boston Scientific noted that its third quarter was impacted by COVID-19 more than it had anticipated as the company experienced deferral of some elective procedures.

For Abbott, its Medical Devices business registered sales of $3.63 billion in Q3 compared with $3.67 billion in Q2. The company noted that some softness was seen in its base business, particularly in August and half of September. This led to a slowdown in the company’s hospital base business in certain areas.

Quest Diagnostics too noted that in late summer, it experienced some softness in the base business across the country, partially caused by the rise of the Delta variant and the timing of summer vacations.

At the same time, the company noticed a growing demand for COVID-19 testing. For the company, COVID-19 testing volumes increased sequentially due to the massive spread of the Delta variant in summer. Quest Diagnostics reported approximately 7.6 million molecular tests and nearly 700,000 serology tests in the third quarter. Testing began to increase meaningfully in mid-July and peaked in early-mid September. The positivity rate peaked in mid-August.

For Abbott, Diagnostics sales increased more than 45%. With the spike in Delta variant cases, demand for the company’s rapid tests increased significantly. In the third quarter, Abbott sold more than 225 million COVID tests globally and shipped over 1 billion tests since the start of the pandemic.

Per the latest Earnings Preview, 25.5% of the companies in the broader Medical sector, constituting nearly 47.6% of the sector’s market capitalization, have already reported earnings. Of these, 78.6% beat on earnings and 85.7% on revenues. Earnings increased 19.6% year over year on 12.1% higher revenues. Overall, third-quarter earnings for the Medical sector are expected to rise 19.5% on a 12.6% sales increase.

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

IDEXX Laboratories, Inc. IDXX: The company’s Companion Animal Group (CAG) business is expected to have gained from consistent and healthy organic revenue growth in the to-be-reported quarter, backed by strong organic CAG diagnostics recurring revenue growth in the United States and internationally. Robust growth in the U.S. clinical business is likely to have contributed to U.S. CAG Diagnostic recurring revenue gains. (Read more: IDEXX to Report Q3 Earnings: What's in the Cards?)

The combination of IDEXX’ Earnings ESP of +2.77% and a Zacks Rank #3 raises the possibility of an earnings surprise in the to-be-reported quarter.

The company is scheduled to release earnings for the third quarter of 2021 on Nov 3.

IDEXX Laboratories, Inc. Price and EPS Surprise

IDEXX Laboratories, Inc. Price and EPS Surprise
IDEXX Laboratories, Inc. Price and EPS Surprise

IDEXX Laboratories, Inc. price-eps-surprise | IDEXX Laboratories, Inc. Quote

Henry Schein, Inc. HSIC: Per Henry Schein’s August 2021 update, the company has been witnessing strengthening demand in the global dental and medical markets on the gradual reopening of practices and stable patient traffic globally over the past few months, even in countries with more stringent lockdown rules. This recovery trend is likely to have continued through the third quarter of 2021, thus boosting the company’s top line.

(Read more: What's in Store for Henry Schein in Q3 Earnings?)

The company has an Earnings ESP of +1.06% and a Zacks Rank #2.

The company is scheduled to release earnings for the third quarter of 2021 on Nov 2.

Henry Schein, Inc. Price and EPS Surprise

Henry Schein, Inc. Price and EPS Surprise
Henry Schein, Inc. Price and EPS Surprise

Henry Schein, Inc. price-eps-surprise | Henry Schein, Inc. Quote

Canopy Growth Corporation CGC: The company, well-positioned in the growing Canadian recreational cannabis market, has been witnessing strength in its business channels amid the post-pandemic recovery. The company’s U.S. cannabidiol (CBD) business has been gaining momentum over the past few months on the back of its highly-successful Martha Stewart CBD product launches. On continued strong rollout, this trend has likely continued through the company’s second quarter of fiscal 2022, adding to its top line.

The company is scheduled to release fiscal second-quarter earnings on Nov 5.

Canopy Growth has an Earnings ESP of +27.8% and a Zacks Rank #3.

Canopy Growth Corporation Price and EPS Surprise

Canopy Growth Corporation Price and EPS Surprise
Canopy Growth Corporation Price and EPS Surprise

Canopy Growth Corporation price-eps-surprise | Canopy Growth Corporation Quote

Insulet Corporation PODD: The company is expected to have registered strong top-line growth in the third quarter on solid uptake of the Omnipod system, both in the United States and international markets. Further, Omnipod DASH’s market access expansion has been continuing successfully in 2021 with the company making the full commercial launch of the system in many prime international markets including Europe and Canada. This should have contributed strongly to the company’s Q3 top line.

Insulet has an Earnings ESP of +15.79% and a Zacks Rank #2.

The company is scheduled to release third-quarter 2021 earnings on Nov 4.

Insulet Corporation Price and EPS Surprise

Insulet Corporation Price and EPS Surprise
Insulet Corporation Price and EPS Surprise

Insulet Corporation price-eps-surprise | Insulet Corporation Quote


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Abbott Laboratories (ABT) : Free Stock Analysis Report

Boston Scientific Corporation (BSX) : Free Stock Analysis Report

Quest Diagnostics Incorporated (DGX) : Free Stock Analysis Report

Henry Schein, Inc. (HSIC) : Free Stock Analysis Report

IDEXX Laboratories, Inc. (IDXX) : Free Stock Analysis Report

Insulet Corporation (PODD) : Free Stock Analysis Report

Canopy Growth Corporation (CGC) : Free Stock Analysis Report

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