2 MedTech Stocks for Earnings Beats
For the past few years, large-cap medical device makers have
been witnessing low-single-digit growth rate in the developed and
mature markets like the U.S., Europe and Japan. To reverse this
trend, they are now turning their focus to high-growth emerging
regions, specifically in economies like Brazil, Russia, India and
China (the BRICs).
Moreover, in their ongoing hunt for the next set of emerging
markets, these stalwarts are also targeting Turkey, Mexico,
Malaysia, Indonesia, the Philippines, South Africa, South Korea
and the Czech Republic - countries that are fast coming up in the
medical devices space. The growing uptake of medical devices in
these emerging economies is largely due to increasing medical
awareness and economic prosperity. Further, an aging population,
increased government focus on healthcare infrastructure and
expansion of medical insurance coverage make these markets
attractive for global medical device players.
According to researchers, the lifestyle of Asian people is
undergoing a dynamic change due to a shift in preference toward
the West. As a result, Asians are now more prone to being
affected by diseases prevalent in the western countries.
Among the BRIC member countries, Brazil is currently the
largest healthcare market in Latin America, covering almost
one-fourth of the population. On the other hand, though India is
one of the largest and rapidly growing healthcare markets in the
world, it is considered as having the least developed healthcare
infrastructure coupled with relatively low healthcare spending.
In a bid to reverse this trend, in the 12th Five-Year Plan
(2012-2017), the Indian government intended to spend 2.5% of its
GDP (up from 1.2% earlier) on health care and raise it to at
least 3% by 2022.
According to a McKinsey & Co. article, healthcare spending
in China is expected to grow to $1 trillion by 2020 from $156
billion in 2006. China is also taking steps to set up adequate
health insurance coverage that should help boost the healthcare
sector. It is expected that within the next decade, China will be
the biggest healthcare market in the world, even outpacing the
Furthermore, despite several political disturbances, Russia is
expected to draw bigger players for investment in health care.
With its $6 billion market opportunity and the 2020 strategic and
economic initiative that emphasizes on science and technology
development, economic development, innovations and requisite
action plans, Russia offers an attractive bid for healthcare
How Significant Emerging Markets Were in Q1?
Stalwarts in the healthcare sector continued expanding their
presence in BRIC and other emerging markets in the quarter. Many
of these companies also seem eager to establish their
manufacturing facilities abroad.
Here are a few instances on that count:
) continues to lead the trend with about 40% of sales coming in
from the emerging markets in the first quarter. The company
expects this contribution to increase to 50% by 2015.
Johnson & Johnson
) showed 13% growth in the BRIC nations during the quarter and is
currently working to increase its presence in these regions. The
company has already set up manufacturing and R&D centers in
Brazil, China and India and expects to expand further in China on
the back of the Synthes acquisition.
Becton, Dickinson and Company
), with about 58% of revenues from international markets,
witnessed double-digit sales growth in the emerging geographies
during the quarter with China growing over 25% at constant
exchange rate (CER).
Against the backdrop of flattening or declining sales growth
in developed markets,
Boston Scientific Corporation
(BSX) achieved 8% international growth in the quarter on the back
of 22% growth in emerging markets, which represented 9% of total
), with 7% of its sales coming from emerging markets in the
quarter, is expected to grow market share further in key
geographies like China and India. Orthopedic major,
Smith & Nephew plc
(SNN), meanwhile continued to gain double-digit sales growth in
In the same vein,
Thermo Fisher Scientific, Inc.
) is also expanding its presence in emerging markets. It expects
to garner 25% of total revenues from the high-growth Asia-Pacific
region and emerging markets by 2016, up from 19% in 2011.
According to the company, China with its rapid industrialization,
increasing focus on healthcare, new BioPharma R&D centers and
government-sponsored research, holds robust growth potential.
How to Choose the Best?
Betting on stocks that are expected to beat earnings in their
upcoming release is a profitable strategy, as earnings beat
generally translates to stock price appreciation.
With the existence of a number of industry players, finding
the right stocks that have the potential to beat earnings
estimates could pose a difficult task, but our proprietary
methodology makes it fairly simple for you. You could narrow down
the list of choices by looking at stocks that have the
combination of a favorable Zacks Rank - Zacks Rank #1 (Strong
Buy), 2 (Buy) or 3 (Hold) - and a positive Earnings ESP.
Earnings ESP is our proprietary methodology for determining
which stocks have the best chance to surprise with their next
earnings announcement. It shows 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 positive earnings surprise is as high as 70%.
2 Stocks Set to Beat Earnings
Here are two medical stocks that have the right combination of
elements to post an earnings beat in the upcoming
): Headquartered in Minneapolis, MN, Medtronic is one of the
world's leading medical technology companies, specializing in
implantable and interventional therapy devices and products. Over
the long haul, the company has successfully adopted the organic
as well as inorganic routes to success.
The Zacks Consensus Estimate for Medtronic is pegged at $1.12
and the company has a long-term earnings expectation of 6.40%.
Moreover, the company has registered an average earnings beat of
3.96% over the trailing twelve months.
The company currently has a Zacks Rank #3 along with an
Earnings ESP of +0.89%. Moreover, despite challenging economic
conditions, pressure on core segments and a larger-than-expected
currency headwind, Medtronic is trying every means to boost
growth. This includes penetration into the international markets,
and expansion of portfolio and restructuring initiatives, which
should benefit the company over the long term.
-- Medtronic is expected to report its fourth-quarter fiscal
2014 results before the opening bell on May 20.
Opko Health, Inc.
) is a multi-national biopharmaceutical and diagnostics company
that is currently developing a range of solutions for diagnosis,
treatment and prevention of various conditions, including
point-of-care tests, laboratory developed tests (LDTs), molecular
diagnostics tests, and proprietary pharmaceuticals and
The stock carries a Zacks Rank #3 with an Earnings ESP of
+20.00%. The Zacks Consensus Estimate for the first quarter is
pegged at a loss of 10 cents a share.
Opko Health has delivered an average earnings beat of 8.25%
over the trailing twelve months. Based on favorable market
dynamics, the company established pharmaceutical platforms in
Chile, Spain, Mexico, Uruguay and Brazil. In view of the untapped
potential of the large and rapidly growing global medical market,
the company plans to commercialize its products in these
high-growth regions including emerging markets.
--Opko Health is expected to report its first-quarter 2014
earnings on May 9.
The Bottom Line
The medical devices industry currently has been subject to the
much controversial 2.3% medical device excise tax and
sequestration-related spending cuts to the U.S. federal budget
which have undermined its prospects. In order to sustain the
current precarious condition within the MedTech space, key
players are trying every possible means to change their business
models and cost structures.
Primarily the sector participants are undertaking various
restructuring initiatives to counter costs associated with the
implementation of the new tax. This renewed focus could result in
continued mergers and acquisitions (M&A) and expansion to
emerging markets going forward. They are also trying to divest
their nonpaying operations in order to weather the tax burden.
Nevertheless, you could safely rely on the industry outperformers
that still possess earnings strength.
MEDTRONIC (MDT): Free Stock Analysis Report
OPKO HEALTH INC (OPK): Free Stock Analysis
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