Top 3 MedTech Stocks, Poised to Gain on Earnings
The medical devices industry, once acclaimed for its high-paying
jobs and research and development opportunities, has been facing
the threat of both the 2.3% medical device excise tax since its
enactment in the beginning of 2013 and sequestration-related
spending cuts to the U.S. federal budget. In fact, these factors
have significantly restricted the industry's bottom-line
improvement this past year.
To make matters worse, this year, more spending cuts are expected
to come into effect which will last through 2021. The medical
devices spending cut, if not repealed, may take a grave turn in
2014, leading to serious consequences like delaying progress in
medical breakthroughs, deterioration in job creation, and tempering
of economic growth.
The imposition of medical device excise tax as part of the
Obamacare roll-out is taking a heavy toll on the medical devices
sector, hurting pricing decisions of participants and subjecting
them to tremendous margin pressure.
However, as a ray of hope amid this difficult scenario, National
Institutes of Health (NIH) recently won a $1 billion or 3.5%
increase in its fiscal 2014 budget from the previous year's
post-sequestration budget (according to fiscal 2014 Omnibus
Appropriations bill released on Jan 13, 2014). As per a recent
report published in lexology.com, this hike - although not
sufficient - is expected to result in 385 million new grant
opportunities for researchers.
Apart from NIH, the National Institutes of Standards and Technology
and The National Science Foundation (NSF) are some others who stand
to gain from this bill. The U.S. Food and Drug Administration (FDA)
has also managed a $217 million increase in its 2014 budget over
the previous year.
However, things are not at all cheery for the Centers for Medicare
and Medicaid Services (CMS). While the bill includes $3.7 billion
for the CMS, this was $195 million less than what was enacted in
the previous fiscal.
Despite the overall negative sentiment, it might be a good idea to
bet on a handful of medical device stocks that are likely to beat
earnings estimates this quarter. An earnings beat will translate
into rapid price appreciation for these stocks. This will give you
above-average return as you are getting these stocks at a cheaper
price due to the overall negative sentiment in the sector.
How to Choose the Best?
With the existence of a number of industry players, finding the
right stocks that have the potential to beat earnings estimates
could appear to be 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
Zacks 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%.
3 Stocks Set to Beat Earnings
Here are three medical stocks that have the right combination of
elements to post an earnings beat this quarter:
Henry Schein Inc.
), based in Melville, N.Y., is a leading distributor of health care
products and services to office-based dental, medical and animal
health practitioners, dental laboratories, government as well as
institutional health care clinics and other alternate-care sites
across the globe. The stock carries a Zacks Rank #1 with an
Earnings ESP of +1.44%. The Zacks Consensus Estimate for earnings
in the fourth quarter is pegged at $1.39.
Henry Schein delivered positive earnings surprises in three of the
last four quarters with an average beat of 1.21%. Based on
favorable market dynamics, the company's animal health and dental
business is expected to deliver strong sales. Over the past several
quarters, the company has demonstrated consistent growth via both
organic and inorganic means.
will be reporting fourth-quarter 2013 earnings on Feb 11.
) is a Zacks Rank #2 stock and has an Earnings ESP of +4.08%. The
Zacks Consensus Estimate for the fourth quarter is 49 cents.
Cyberonics is a medical technology company with core expertise in
neuromodulation. The company provides Vagus Nerve Stimulation (VNS)
therapy for the treatment of refractory epilepsy and
treatment-resistant depression (TRD). The company has delivered
positive earnings surprises in the trailing four quarter.
Cyberonics continued to gain from a solid foothold in the epilepsy
market and strong overseas business. Further penetration in the
still untapped epilepsy market should also catalyze growth. The
company's lucrative pipeline is another upside.
will be reporting fourth-quarter fiscal 2014 earnings on Feb 20.
), based in San Diego, Calif., is a Zacks Rank #2 (Buy) stock with
an Earnings ESP of +14.29%. The Zacks Consensus Estimate for the
fourth quarter is pegged at a loss of 7 cents.
DexCom, Inc. is a medical device company focused on the design,
development and commercialization of continuous glucose monitoring
systems. These are designed particularly for ambulatory use for
people with diabetes and by healthcare providers for the treatment
of diabetic and non-diabetic patients. The company has delivered
positive earnings surprises in the training four quarters with an
average beat of 17.34%.
The company's G4 Platinum is expected to do well in the fourth
quarter. Increased awareness of the need for continuous glucose
monitoring, new products and data supporting blood glucose
monitoring should help drive sales.
will be reporting fourth-quarter 2013 earnings on Feb 20.
The Bottom Line
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. They 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.
CYBERONICS INC (CYBX): Free Stock Analysis
DEXCOM INC (DXCM): Free Stock Analysis Report
HENRY SCHEIN IN (HSIC): Free Stock Analysis
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