The latest Earnings Preview shows that the Medical sector, which is one of the 16 broad Zacks sectors within the Zacks Industry classification, is among a handful few poised to report earnings growth for the fourth quarter of 2019. Earnings from this sector are expected to be up 3.6% on 5.4% higher revenues.
However, the projections indicate a sequential decline from the third-quarter scorecard, which reflected earnings growth of 6.2% on 7.2% revenue improvement.
Integral to the broader Medical sector, Medical Products companies are expected to fare impressively this earnings season. Over the last few quarters, these industry players encouraged investors with solid earnings figures despite certain quarterly volatilities. However, this time around, the earnings results are expected to display a slight dent in growth to mirror the ongoing US-China trade debacle and constant regulatory changes.
Meanwhile, the Zacks Medical Product sector currently carries a Zacks Sector Rank in the top 44% (111 of 256 industries).
Factors Likely to Drive Q4 Release
The past few months have been remarkable for the medical device space in terms of innovation. With AI-powered launches like polyp detector, autonomous AI imaging system for detecting skin cancer, diabetic retinopathy using retinal images, talking algorithm, drugstore chatbots and many more, the medical device domain went from strength to strength. Among other breakthroughs, we should mention the path-breaking heart failure predictor HeartLogic, launched by Boston Scientific BSX, Medtronic’s MDT Activa Patient Programmer for Deep Brain Stimulation (DBS) therapy and Edwards Lifesciences’ EW Inspiris Resilia for patients with aortic heart valve.
Wide expansion in the emerging markets is expected to be a bonus this reporting cycle. Per Moody’s statement in 2019, medical device makers are likely to have exhibited mid-single digit revenue growth, fuelled by product invention across most companies and categories. Additionally, sales in the emerging markets are expected to have witnessed a double-digit percentage rise in 2019, which in turn should reflect on the medical product entities’ fourth-quarter results.
During the fourth quarter, the government introduced its funding bills wherein it talked about a new suspension of the 2.3% Medical Device tax. “We have now also repealed the Obamacare Medical Device Tax, which threatened access to cutting-edge devices that save lives and enhance the quality of life for all Americans.”
This tax was originally enacted in 2013 as part of the Affordable Care Act (ACA). The burden of this 2.3% tax used to fall on the device manufacturers or importers. The suspension offered a relief to medical device manufacturers, enabling them to channelize their funds into R&D. This, in turn, might have positively impacted the fourth-quarter performance of relevant industry players.
Factors to Worry About
Massive Device Suspension a Bane: Repeating the first three quarters’ trend in 2019, the last quarter of the year too witnessed mass product recalls by medical device manufacturers. Going by a Medical Device and Diagnostic Industry report of December 2019, “there have been 48 medical device recalls issued in 2019, according to the FDA, and the agency reported on four of those recalls just in the past week.” These four suspensions include devices from bigwigs like Medtronic and GE Healthcare. These recalls are expected to have restricted revenue generation of the respective manufacturers in the fourth quarter.
Trade War Fiasco Continues: The U.S.-China trade war triggered a short-term downtrend in the Medical Instruments sector. Despite a series of recent exemptions by the U.S. Trade Representative (USTR) and the introduction of the phase one trade deal, the entire community is anxious about the impact it may have had on the fourth quarter. Going by a Forbes report, "medical device makers say there is impact to the industry and the threat of more tariffs to come in an ongoing trade war with China is troubling, hitting various parts of the medtech industry".
What Our Model Says
The proven Zacks model predicts an earnings beat for a company with a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). This combination increases the chances of beating estimates. 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 four Medical Products behemoths that are set to release earnings results on Jan 29.
Align Technology, Inc. ALGN: The company is expected to have gained traction from the continued adoption of Invisalign system in the fourth quarter of 2019. Banking on Invisalign portfolio expansion and sustained Invisalign case volume growth across customer channels and geographies, the company is expected to have generated robust revenues at the Clear Aligner segment. (read more: What's in Store for Align Technology's Q4 Earnings?).
Align Technology has an Earnings ESP of +1.70% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Align Technology, Inc. Price and EPS Surprise
Align Technology, Inc. price-eps-surprise | Align Technology, Inc. Quote
Hologic, Inc. HOLX: The company’s first-quarter fiscal 2020’sresults are likely to reflect benefits from the Breast Health segment. Within this business, growth of Breast Imaging and Interventional Breast Solutions sub-segments is expected to have aided the to-be-reported quarter’s performance. The company expects its Diagnostics segment to have maintained a stellar performance in the fiscal first quarter on the back of strength in the Molecular Diagnostics business. In the United States, it is likely to have benefited from an expanding market share and increasing utilization of the Panther system, the fully automated molecular diagnostics instrument. (read more: Will Segmental Growth Aid Hologic in Q1 Earnings?)
Hologic has an Earnings ESP of +2.20% and a Zacks Rank of 3.
Hologic, Inc. Price and EPS Surprise
Hologic, Inc. price-eps-surprise | Hologic, Inc. Quote
Varian Medical Systems, Inc. VAR: The company’s solid Oncology platform prospects are expected to have driven its first-quarter fiscal 2020 performance. Not to forget, in the last reported quarter, the segment accounted for 93.3% of net sales. (read more: What's in Store for Varian Medical in Q1 Earnings?)
Varian Medical has an Earnings ESP of 0.00% and is Zacks #3 Ranked.
Varian Medical Systems, Inc. Price and EPS Surprise
Varian Medical Systems, Inc. price-eps-surprise | Varian Medical Systems, Inc. Quote
CONMED Corporation CNMD: On a broad product spectrum, CONMED’s core units, Orthopedic Surgery and General Surgery, are expected to report strong top-line growth for the fourth quarter of 2019. Recent launched products like the MicroFree platform in Orthopedics, the TruShot, the Y-Knot Pro and the CRYSTALVIEW Pump are likely to have contributed to the company’s revenue stream. However, the fourth-quarter results might reflect difficult year-over-year comparisons in terms of organic revenue growth.
CONMED has an Earnings ESP of 0.00% and a Zacks Rank #4 (Sell).
CONMED Corporation Price and EPS Surprise
CONMED Corporation price-eps-surprise | CONMED Corporation Quote
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Hologic, Inc. (HOLX) : Free Stock Analysis Report
Varian Medical Systems, Inc. (VAR) : Free Stock Analysis Report
Medtronic PLC (MDT) : Free Stock Analysis Report
Boston Scientific Corporation (BSX) : Free Stock Analysis Report
Edwards Lifesciences Corporation (EW) : Free Stock Analysis Report
CONMED Corporation (CNMD) : Free Stock Analysis Report
Align Technology, Inc. (ALGN) : Free Stock Analysis Report
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