We expect Cardinal Health (CAH) to beat expectations when it reports fiscal second quarter 2013 results on Feb 5.
Why a Likely Positive Surprise?
Our proven model shows that Cardinal Health is likely to beat earnings because it has the right combination of two key ingredients.
Positive Zacks ESP: Earnings Expected Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method), which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is at +1.2%. This is a meaningful and leading indicator of a likely positive earnings surprise for shares.
Zacks Rank #3 (Hold): Note that stocks with Zacks Ranks of #1, 2 and 3 have a significantly higher chance of beating earnings. The sell rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of Cardinal Health’s Zacks Rank #3 (Hold) and Earnings ESP of +1.2% makes us confident of a positive earnings beat this coming announcement.
What is Driving the Better than Expected Earnings?
The company stands to gain from the gradual shift in mix from bulk to the higher-margin non-bulk sector of the Pharmaceutical segment. It is also riding the generic wave. Overall, Cardinal benefits from a spate of tuck-in acquisitions and capital deployment strategies. The positive trend is seen in the trailing four-quarter average surprise of 4.3%.
Other Stocks to Consider
Cardinal Health is not the only stock looking up this earnings season. We also see likely earnings beats coming from these three players.
ResMed (RMD) has earnings ESP of +3.6% and Zacks Rank #1 (Strong Buy).
Cyberonics(CYBX) has earnings ESP of +2.6% and Zacks Rank #1 (Strong Buy).
Becton, Dickinson and Company (BDX) has earnings ESP of +3.3% and Zacks Rank #2 (Buy).
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