Can Dental Growth Drive Henry Schein's (HSIC) Q3 Earnings?

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Henry Schein, Inc.HSIC is expected to report third-quarter 2018 results on Nov 6. Last reported quarter, the company's earnings exceeded the Zacks Consensus Estimate by 1.96%. Overall, the metric surpassed estimates in two of the last four quarters, the average positive surprise being 0.47%.

Let's see how things are shaping up prior to this announcement.

Factors at Play

Over the last few quarters, Henry Schein demonstrated solid growth across all four segments, namely, Dental, Animal Health, Medical and Technology plus Value-Added Services. Geographically, the company gained traction across all regions. We expect this trend to reflect in the impending quarterly results.

Favorable Dental Business Trend : The company's strategy to expand digital dentistry globally is encouraging. In this regard, management believes that the company is well-positioned to benefit from the ongoing trend of digitalization in the international dental market.

Particularly, we are looking forward to Henry Schein's latest joint venture with Internet Brands on dental technology to form Henry Schein One. The JV combines Henry Schein Practice Solutions' products and services with the dental businesses of Internet Brands. In September, Henry Schein One announced the launch of Dentrix G7, the upgraded version of the dental practice management system. It also launched OmniCore, an all-in-one network infrastructure solution providing hardware and services required to meet dental practices' IT needs, in the same month.

In a major breakthrough in its dental business, Henry Schein entered the rapidly growing market for orthodontic aligners with the launch of proprietary SLX Clear Aligner System in May 2018. Management seems to be encouraged by the positive feedback for the product from the Key Opinion Leaders and other market participants. Henry Schein planned to expand the availability of the same in the United States in the remaining half of 2018.

Henry Schein, Inc. Price and EPS Surprise

Henry Schein, Inc. Price and EPS Surprise | Henry Schein, Inc. Quote

We expect encouraging top-line contributions from these developments in the yet-to-be reported quarter.

Furthermore, we are upbeat about management's expectations about the sustained dental equipment business growth in Europe and other regions. The company continues to benefit from the offering of complete services along with telesales and e-commerce distribution capabilities in many European countries. The bullish trend is expected to reflect in the to-be-reported quarter results.

Animal Health Spin-Off Update : Henry Schein is currently awaiting the completion of the spinoff of its global Animal Health business.

For the third quarter, we are optimistic about the well-diversified Animal Health product portfolio featuring software, diagnostic equipment and surgical instruments. The product offerings have been driving growth domestically as well as overseas.

Growing Medical Business : Henry Schein is consistently working on boosting its Medical segment. Notably, worldwide Medical revenues rose 7.5% year over year in the second quarter. We expect to see another quarter of strong organic growth from the existing customer base and patient traffic. We are also upbeat about the company making the Henry Schein EasyOne Air spirometer available at the end of the previous quarter. We also look forward to the company's agreement with Welch Allyn to distribute the Spot Vision Screener in September.

Broad Distribution Network : We are bullish about the company's pervasive distribution network. Apart from North America and Europe, the company has presence in Australia and New Zealand as well as in the emerging nations of China, Brazil, Israel, Czech Republic and Poland. We are convinced that Henry Schein will continue to ride on strength in its broad distribution network in the quarter under review.

On the flip side, Henry Schein's gross and operating margin performance has been disappointing over the last few quarters due to higher cost of sales and expenses.

What Our Model Suggests

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP . You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Henry Schein has a Zacks Rank #2 and an Earnings ESP of 0.00%, a combination that does not conclusively show an earnings beat for Henry Schein.

The Zacks Consensus Estimate for earnings of $1.01 reflects a 16.1% rise on a year-over-year basis.

Stocks Worth a Look

Here are a few medical stocks worth considering as they have the right combination of elements to post an earnings beat in their upcoming quarterly results.

Haemonetics Corporation HAE has an Earnings ESP of +5.56% and a Zacks Rank #1. You can see  the complete list of today's Zacks #1 Rank stocks here .

Quidel Corporation QDEL has an Earnings ESP of +10.55% and a Zacks Rank #3.

Myriad Genetics, Inc. MYGN has an Earnings ESP of +9.09% and a Zacks Rank #3.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: HAE , QDEL , MYGN , HSIC

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