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3 MedTech Stocks Poised to Trump Earnings in Q3

So far, 2015 has been a transition year for the MedTech sector. Positive demographic trends, new product cycles, expansion into emerging markets and widespread consolidation are the key traits that have shaped the growth trajectory of the sector throughout the year.

Notably, MedTech was one of the few resilient sectors during the recent global sell-off. The market volatility that resulted from the oil price slump, downturn in the China economy and FDA's uncertainty over rate hike did not impact the sector much.

The stability was largely a result of a strong product cycle and continuing innovation across different markets. Robotics, Transcatheter Aortic Valve Replacement (TAVR), Ventricular Assist Devices (VAD), Spinal Cord Stimulator (SCS) are some of the fields that are seeing continual innovation and product launches.

MedTech firms are constantly expanding their business through partnerships and acquisitions. The buyout of Sirona Dental by DENTSPLY International (XRAY) and HeartMate developer Thoratec by St. Jude Medical are recent examples of such strategic transactions that has expanded the total addressable market.

Moreover, DENTSPLY and St. Jude's wider resources will support continuing product innovation. An expansion in baby boomers is driving demand for devices that will support healthy living for the aging population.

However, apart from struggling with the medical device tax and anti-inversion bottlenecks, stronger dollars, pricing and shipping-related issues continue to hurt earnings for MedTech companies.

Nevertheless, we believe the MedTech sector has significant steam left to fuel further growth driven by higher investments in research & development, improving product utilization trends and strong balance sheets providing significant liquidity to pursue strategic buyouts.

Which is the Right Pick?

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. Our proprietary methodology, however, 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 #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP .

Earnings ESP is our proprietary methodology for determining stocks that have the best chance to surprise with their next earnings announcement. It provides 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 a positive earnings surprise is as high as 70%.

3 Stocks Set to Beat Earnings

Given below are three MedTech providers that have the right combination of elements to post an earnings beat this quarter:

NuVasive Inc ( NUVA ) - San Diego, CA-based NuVasive is focused on developing minimally-disruptive surgical products and procedurally-integrated solutions for the spine. The company notes that the spine fusion market, including biologics, is estimated to be approximately $9.0 billion globally in 2015. This market is gradually experiencing greater adoption and increasing demand for the company's line of surgical alternatives that offer less tissue disruption.

NuVasive's robust performance in the international market raises optimism. Most recently, the company received FDA 510 (k) approval for its X-Core Mini Cervical Corpectomy System, which is a significant positive, in our view.

NuVasive currently sports a Zacks Rank #1 and has an earnings ESP of +7.41%. The company will report third-quarter fiscal 2015 earnings results on Oct 27.

AtriCure Inc. ( ATRC ) - AtriCure's Isolator Synergy System was approved by the FDA in Dec 2011. The company is currently conducting several clinical trials (PAS, Staged DEEP AF, Stroke Feasibility trial of AtriClip System, ATLAS, CEASE AF) using its Isolator Synergy and AtriClip system.

We believe new products based on AtriClip, an expanding sales and marketing team, increasing focus on international growth are the key growth catalysts. The recent acquisition of nContact is another positive as it has expanded the company's product portfolio apart from eliminating a potential competitor.

West Chester, OH-based AtriCure currently carries a Zacks Rank #3 and has an earnings ESP of +18.18%. The company is set to release its third-quarter results on Oct 27.

Zimmer Biomet Holdings Inc. ( ZBH ) - Warsaw, IN-based Zimmer Biomet is a leading musculoskeletal healthcare company that designs, manufactures and markets orthopedic reconstructive products. In June this year, Zimmer Holdings Inc. completed its prior announced acquisition of Biomet Inc.

Following the deal, Zimmer Biomet has emerged as a leading innovator in the $45 billion musculoskeletal industry. Net synergies from the merger are anticipated to reach $350 million in pre-tax by the end of the third year, post the transaction.

Zimmer Biomet recently expanded the application of its patented surgical procedure - Subchondroplasty - for treating foot and ankle joints, which will bolster its footprint in the billion-dollar global sports medicine device market.

The stock holds a Zacks Rank #3 with an earnings ESP of +2.58%. The company is slated to announce its third-quarter financial numbers on Oct 29.

To Sum Up

Although a stronger dollar and pricing pressure will continue to play spoilsport, we believe these three stocks are good picks for this earnings season.

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NUVASIVE INC (NUVA): Free Stock Analysis Report

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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.


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

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