Yahoo Finance Can Covidien (COV) Keep Its Earnings Streak Alive? - Analyst Blog
We feel that Covidien plc (COV) can keep its earnings streak alive as we expect the company to beat expectations this earnings season. Covidien is slated to report first-quarter fiscal 2015 results before the opening bell on Jan 22.
In the preceding quarter, Covidien had delivered a 13.86% positive earnings surprise on the back of higher sales growth and stringent cost control. Notably, the company has surpassed the Zacks Consensus Estimate in all of the last four quarters, with an average earnings beat of 6.32%.
Let us see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Covidien is likely to beat earnings this season as it has the right combination of two key ingredients.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is at 2.91%. This is a very meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Covidien carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Ranks #1, #2 and #3 have a significantly higher chance of beating earnings. Conversely, Sell-rated stocks (Zacks Rank #4 and 5) should never be considered going into the earnings announcement.
The combination of Covidien’s Zacks Rank #3 (Hold) and ESP of 2.91% makes us confident of an earnings beat this season.
What is Driving the Better-Than-Expected Earnings?
We believe that Covidien’s expanding product pipeline, strategic initiatives along with expansion into emerging markets are expected to lead to a positive earnings surprise in the to-be-reported quarter. Moreover, its recent takeover by Medtronic (MDT) is expected to generate significant synergies going forward.
Covidien recently gained several U.S. Food and Drug Administration (FDA) and CE Mark approvals for its products including the Stellarex DCB platform, the Fortrex PTA balloon catheter and the Nellcor devices, all of which are expected to boost the overall business. The company’s current cost reduction program and restructuring efforts should also result in improved margins and profits.
However, Covidien’s activities have failed to impress analysts. Hence, the Zacks Consensus Estimate for fiscal 2015 fell roughly 0.5% to $4.32 while the same for fiscal 2016 dropped 0.6% to $4.67 over the last 30 days.
Other Stocks to Consider
Covidien is not the only company looking up this earnings season. We also see likely earnings beats coming from these two industry peers:
Align Technology (ALGN) with an Earnings ESP of 2.04% and a Zacks Rank #3 (Hold).
IDEXX Laboratories (IDXX) with an Earnings ESP of 10.15% and a Zacks Rank #3 (Hold).
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MEDTRONIC (MDT): Free Stock Analysis Report
ALIGN TECH INC (ALGN): Free Stock Analysis Report
COVIDIEN PLC (COV): Free Stock Analysis Report
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