4 MedTech Stocks to Keep in Good Books This Earnings Season
Only a handful of S&P 500 players have released their numbers so far this earnings season. We expect the first quarter to see strong revenues as reflected by the solid upward trend in estimate revisions.
Meanwhile, three back-to-back events in the quarter have rattled the global economy. The first was the U.S.-China trade war chaos, then came the tech backlash stemming from Facebook’s (FB) data fiasco, and finally, the chemical attack in Syria paving ways for fresh troubles between America and Russia.
Furthermore, apprehensions related to further rate hikes by the Fed continue to do the rounds.
Is Medical Device a Safe Haven?
It is said that the stock market runs on sentiments and any unforeseen event in a particular sector has a ripple effect on others. Going against this notion, the Medical-Device sector within the broader Medical universe has proven to be a refuge for investors. Shrugging off the ongoing tensions, the sector has returned 2% year to date, significantly higher than the S&P 500’s return of 1.1%.
This is because, Medical-Device companies have been riding high on R&D innovation, increasing consolidation, focus on emerging market and tax abolition.
In fact, our latest Earnings Preview gives an encouraging picture with the broader Medical space expected to register year-over-year earnings growth of 7.8% on revenue growth of 6.3%.
So, it would rather be interesting to see how the Medical-Device companies are placed ahead of the reporting cycle and what are the major factors shaping up the releases.
Growth Drivers
Going by a CISION report, the United States is the largest Medical-Device market in the world, raking in more than $180 billion in revenues. It has been a very profitable investment space of late.
Considering the ageing population, changing market dynamics toward Artificial Intelligence (AI) & big-data applications, upbeat consumer sentiment and increased business investments, the Medical-Device sector appears to be in pink of health. Here are the latest headlines from the space:
Taxes Abolished!
A bipartisan two-year suspension of a ‘Medical Device’ tax, which imposed a 2.3% excise tax on MedTech manufacturers, has been a temporary relief. It will be again put into effect on Jan 1, 2020.
The repeal is expected to boost hiring and investment among the 9,000 America-based Medical-Device manufacturers, instilling investor optimism in them.
The ratification of the tax-repeal amendment has encouraged massive investments in the sector.
Digital Revolution Takes MedTech by Storm
The latest trend of robotic surgeries, Big-data analytics, bio printing, 3D printing, electronic health records (EHR), predictive analytics, real-time alerting and revenue cycle management services in the U.S. MedTech space have been gaining prominence.
Various reports suggest that the strategic application of AI in every sphere of healthcare can provide an impetus to productivity. Evidently, companies that adopted AI technologies have witnessed a 50% reduction in healthcare costs and have also experienced improved patient outcome of more than 50%.
This along with a rise in minimally-invasive surgeries, higher demand for liquid biopsy tests and use of IT for quick and improved patient care, and the shift of the payment system to a value-based model have been driving profits of Medical-Device companies of late.
Buyout Rush
Lately, health insurers have been looking to collaborate with pharmacy benefit managers in the MedTech space to streamline costs in the drug supply chain.
Buoyed by continued capital inflow, strategic M&A policies by key Medical-Device players have expanded customer base, moderated leverage and enhanced cash flow. This has also alleviated pricing pressure and competition in the MedTech space.
In this regard, the latest buyout announcement of Express Scripts (ESRX) by Cigna, which follows just three months of drug chain and pharmacy giant CVS Health Corp’s (CVS) announcement of plans to acquire the nation's third-largest health insurer Aetna, is important. Becton, Dickinson and Company’s (BDX) takeover of C. R. Bard is also worth a mention.
Zacks Methodology to the Rescue
Given the existence of a number of players in the Medical-Device industry, finding the right stocks that have the potential to beat earnings banking on the above factors might quite an intimidating task.
Our proprietary Zacks methodology, however, makes it fairly simple for you.
One can narrow down choices by focusing specifically on the ‘medical instruments’ and ‘medical product’ stocks (specialized chunks under the Medical-Device subcategory), that sport the desirable combination of a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).
Earnings ESP is our proprietary methodology for determining stocks that have the best chance to surprise with their next earnings announcement. It provides the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.
Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
Going by this criterion, we hereby present four stocks that are poised to beat estimates this quarter.
Our Picks
Edwards Lifesciences Corporation (EW): Headquartered in Irvine, CA, Edwards Lifesciences deals in products and technologies aimed at treating advanced cardiovascular diseases, especially structural heart disease in critically ill patients.
The company’s strong pipeline of products and solid performance delivered in the TAVR market bolster our confidence in the stock. Although Edwards Lifesciences’ higher operating expenses might have made investors apprehensive, it is a respite as the funds were used for adopting advanced initiatives to drive overall sales.
Edwards Lifesciences will report first-quarter 2018 results on Apr 24, after the market closes.
We believe the company is set to beat the Zacks Consensus Estimate as it has a Zacks Rank #3 and an Earnings ESP of +1.36%.
Hologic, Inc. (HOLX): Headquartered in Bedford, MA, Hologic develops, manufactures, and supplies diagnostics, medical imaging systems and surgical products which cater to the healthcare needs of women. The company is focused on mammography systems for breast examination and osteoporosis assessment.
The company will release results for the second quarter of fiscal 2018 on May 2, after the market closes.
Hologic’s Zacks Rank #3 and an Earnings ESP of +0.94% raise possibilities of a beat this quarter.
Meanwhile, you can see the complete list of today’s Zacks #1 Rank stocks here.
Stryker Corporation (SYK): Headquartered in Kalamazoo, MI, Stryker is one of the world’s largest Medical-Device companies operating in the orthopedic market.
Mako is Stryker’s robotic-arm Assisted surgery platform which provides a predictable surgical experience when performing joint replacement surgery.
Recently, Stryker launched the robotic-arm assisted total knee arthroplasty application for use with the Mako System. Notably, this is the first and only robotic technology which can be used for total knee, hip and partial knee replacement procedures. Notably, Mako Total Knee utilizes both Stryker’s robotic platform and Triathlon Total Knee System, guided through CT-based 3D modeling of bone anatomy. The system also allows for intra-operative planning and assists in bone resectioning procedures.
Stryker will report first quarter of 2018 results on Apr 26, after market close.
We believe Stryker is poised to trump the Zacks Consensus Estimate as it has the encouraging combination of a Zacks Rank #2 and an Earnings ESP of +0.16%.
Teleflex Incorporated (TFX): Headquartered in Wayne, PA, Teleflex develops, manufactures, and supplies single-use medical devices for common diagnostic and therapeutic procedures in critical care and surgical applications worldwide.
The company’s strong focus on High Flow Nasal Cannula Therapy (HFNCT) is likely to lend it a competitive edge in the niche space.
Solid growth in the preloaded anti-microbial and anti-thrombogenic VPS PICCs platform is likely to strengthen the vascular platform. In the surgical segment, new products like EFx and Ae05 fortify the company’s foothold. Finally, the company’s flagship LMA unique product strengthens its Anasthesia product line.
The company is expected to report first-quarter 2018 results on May 3.
We expect an earnings beat for this stock which has a Zacks Rank #3 and an Earnings ESP of +0.71%.
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