The Medical Products companies within the broader Medical sector rely on research and development for growth and are currently reaping benefits as a result with the temporary repeal of 2.3% Medical Device tax in 2018. Consequently, the companies in this space are anticipated to put up a good show this earnings season.
Over the past few months, the medical device space has witnessed exceptional progress when it comes to innovation — R&D to be precise. Some of the path-breaking inventions such as wireless brain sensors, Bluetooth-enabled smart inhalers, artificial pancreas, human-brain pacemaker, precision medicine and many more have helped the medical device space to grow significantly.
Strong demand in the emerging markets is likely to bolster the performance of the industry participants in this reporting cycle. According to a MedTech Dive report, as stated by Moody’s, the medical device makers are likely to exhibit mid-single-digit revenue growth fueled by product innovation across most of the companies and categories. Additionally, sales in emerging markets are expected to display a double-digit percentage rise.
Backed by the rising medical awareness and economic prosperity, emerging economies are witnessing strong demand for the medical products. In fact, a geriatric population, relaxed regulations, cheap skilled labor, increasing wealth and the government focus on healthcare infrastructure make these markets attractive to the global medical device players.
However, the U.S. Medical Products industry has confronted short-term hurdles pertaining to the trade war with China. Per a Medical Imaging & Technology Alliance (MITA) survey, tariffs will cost the companies nearly $138 million every year.
It is important to note here that the medical product space is facing a significant bottom-line pressure (particularly the companies that have production in China) owing to the imposition of U.S. tariff and the Chinese retaliation to counter the same. Nonetheless, the latest update on the U.S. exemptions of some medical devices from 25% tariff and both the countries’ efforts to temporarily resume trade negotiations comes as a relief to investors.
The U.S. medical device excise tax, at 2.3% of U.S. sales, is scheduled for reinstatement on Jan 1, 2020. According to the aforementioned MedTech Dive report, Moody’s stated that the consolidation among payers can increase pricing pressures on medical device makers.
The latest Earnings Preview anticipates the Medical sector to deliver positive earnings surprises this time around (as of Jul 26). For the quarter under review, earnings growth rate is projected at 3.6% on 5.2% revenue growth.
What Our Model Says
The proven Zacks model clearly indicates that a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has good chances of beating estimates if it also has a positive Earnings ESP. Conversely, a Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided, especially if the companies are witnessing negative estimate revisions. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Considering the above factors, we take a look at the following five Medical Products players that are set to release quarterly results on Jul 31.
McKesson Corporation MCK: The company’s U.S. Pharmaceutical and Specialty Solutions segment is likely to act as a key catalyst in bolstering the company’s fiscal first-quarter 2020 results. Notably, the segment is likely to gain momentum on the back of its branded, generic and over-the-counter pharmaceuticals. This apart, the company is likely to display better-than-expected performance across the segments – European Pharmaceutical Solutions, Medical Surgical Solutions and Other, which in turn will aid the upcoming quarterly results (read more: McKesson to Report Q1 Earnings: What's in the Offing?).
McKesson Corporation Price and EPS Surprise
McKesson Corporation price-eps-surprise | McKesson Corporation Quote
McKesson has a Zacks Rank #2 and an Earnings ESP of +0.77%, which makes us reasonably confident of an earnings beat in the to-be-reported quarter. You can see the complete list of today’s Zacks #1 Rank stocks here.
Hologic, Inc. HOLX: The company anticipates third-quarter fiscal 2019 results to benefit from the Breast Health segment. Within this business, growth of the Breast Imaging and Interventional Breast Solutions sub-segments are expected to contribute to the to-be-reported quarter’s results. This apart, the company expects its Diagnostics segment to aid the fiscal third quarter results backed by strength in the Molecular Diagnostics business. However, the company is facing challenges like unfavorable foreign currency movements over the last few quarters. Escalating operating expenses and intense competition, particularly in the tomosynthesis market are likely to weigh on upcoming quarterly results (read more: : Can Breast Health Growth Aid Hologic in Q3 Earnings?).
Hologic, Inc. Price and EPS Surprise
Hologic, Inc. price-eps-surprise | Hologic, Inc. Quote
Hologic has a Zacks Rank #2, which when combined with an Earnings ESP of +1.49%, makes us reasonably confident of a positive surprise in the to-be-reported quarter.
DexCom, Inc. DXCM: The company’s second-quarter 2019 results are likely to benefit from possible increase in volumes across all channels and rising global awareness of its real-time CGM. Moreover, the company has a sizeable international market opportunity on account of 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. However, the company projects restructuring related cost to approximately range between $15 million and $20 million for 2019 with the majority being incurred in the first half. Going by this projection, we expect a similar trend in the to-be-reported quarter (read more: What's in the Offing for DexCom’s Earnings in Q2?).
DexCom, Inc. Price and EPS Surprise
DexCom, Inc. price-eps-surprise | DexCom, Inc. Quote
DexCom has an Earnings ESP of 0.00% and a Zacks Rank #1, a combination that makes surprise prediction difficult.
Masimo Corporation MASI: The company is expected to gain traction from a slew of developments and product launches, which in turn is likely to aid its second-quarter 2019 results. However, Masimo’s Royalty and Other unit has been facing softness for a couple of quarters now. In fact, management does not expect any significant contribution from the unit in the quarter to be reported (read more: Masimo to Report Q2 Earnings: What’s in the Offing?).
Masimo Corporation Price and EPS Surprise
Masimo Corporation price-eps-surprise | Masimo Corporation Quote
Masimo has an Earnings ESP of 0.00% and a Zacks Rank #3, a combination that makes surprise prediction difficult.
LivaNova PLC LIVN: LivaNova is a medical device company that designs, develops, manufactures, and sells therapeutic solutions worldwide. Headquartered in London, the U.K., the company operates in two segments, Cardiovascular (CV) and Neuromodulation (NM).
The Zacks Consensus Estimate for second-quarter 2019 revenues is pegged at $274.1 million, indicating a decline of 4.7% from the year-ago reported figure. The same for earnings stands at 68 cents, suggesting a decline of 29.2% from the year-ago quarter. In the preceding four quarters, the company outpaced the consensus mark, the average being 0.44%.
LivaNova PLC Price and EPS Surprise
LivaNova PLC price-eps-surprise | LivaNova PLC Quote
LivaNova has an Earnings ESP of 0.00% and a Zacks Rank #3, a combination that makes surprise prediction difficult.
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