With the finance sector posting solid results and the outlook for the domestic economy being bright, the overall fourth-quarter results are expected to be quite an impressive show.
Meanwhile, a throwback to the second half of 2016 reveals quite a few positive surprises. Of the many developments, the ones that influenced the investment markets the most include the victory of Donald Trump, the greenback hitting a 13-year high, the Fed's rate hike, and last but not the least, the recovery in oil price. We believe that all of these factors together will have a momentous impact this earnings season.
Medical, a major sector in the S&P 500 cohort, is expected to register earnings growth in the fourth quarter of 2016. However, the earnings season has just begun with 63 S&P 500 participants having reported results so far. With the majority of bigwigs yet to report their results, the next week will be crucial in deciding whether this quarter will turn out to be a game changer for the sector.
Meanwhile, per the latest Earnings Preview , the fourth-quarter earnings for the S&P 500 companies are expected to be up 4.8% from the year-ago quarter on 3.7% growth in revenues. Medical is one of the broader sectors among the 16 Zacks sectors that is expected to report earnings growth in the fourth quarter. The sector is expected to witness 2.9% earnings growth on the back of 5.6% higher revenues.
Medical Product Sector at a Glance
Medical product, a niche area under the medical device subcategory within the broader Medical sector, shines bright at this moment. This is because the sector gained almost 1.6%, comparing favorably with the S&P 500's addition of just 0.27% over the last one month.
Notably, the growth story in the space exclusively pertains to the market dynamics and the shift in consumer demand, courtesy of the growing prevalence of minimally invasive surgeries, liquid biopsy tests, and use of IT for ensuring quick and improved patient care among other things. Furthermore, cost-effective products and techniques targeting emerging markets raise optimism in the space.
Let's take a look at the major Medical Product stocks slated to release their earnings results on Jan 25:
McKesson CorporationMCK - This San Francisco, CA-based healthcare services provider is scheduled to report third-quarter fiscal 2017 results, after market close. The company has been facing challenging conditions over the last few quarters owing to lower generic launches, pricing pressure and customer transitions. Last quarter, the company missed earnings estimates by 3.6%.
In fact, our proven model does not conclusively show that the company is likely to beat earnings this quarter, given the combination of a Zacks Rank #4 (Sell) and Earnings ESP of -2.71%.
That is because, as per our model, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to beat earnings. Simultaneously, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
McKesson Corporation Price and EPS Surprise
However, we note that McKesson has a long-term expected earnings growth rate of 8.23%, instilling investor confidence (read more: McKesson Q3 Earnings: Stock Likely to Disappoint? )
Varian Medical Systems, Inc.VAR - This Palo Alto, CA-based leading manufacturer of medical devices and software for the treatment of cancer is set to report results for the first quarter of fiscal 2017, after the closing bell.
Last quarter, the company reported earnings of $1.38 per share, which beat the Zacks Consensus Estimate by 3 cents. Notably, the figure improved 32.7% on a year-over-year basis.
Despite strong prospects in its oncology business, increasing local competition is a headwind. Moreover, the Imaging Components' business spin-off will remain an overhang on the stock, at least in the near term (read more: Varian Medical Q1 Earnings: Is a Surprise in Store? )
Our quantitative model also does not conclusively show a beat for the company, given the combination of a Zacks Rank #3 and Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .
Varian Medical Systems, Inc. Price and EPS Surprise
Quality Systems, Inc.QSII - Irvine, CA-based Quality Systems is one of the leading developers and providers of computer-based practice management systems for medical and dental group practices. The company is set to release its third quarter of fiscal 2017 results, after the closing bell. Notably, in the last quarter, Quality Systems posted stellar results, surpassing the Zacks Consensus Estimate on both the counts.
However, an unfavorable product mix, global economic weakness, intensifying competition and growing integration risks due to frequent acquisitions are expected to mar the company's prospects.
Also, our proven model does not predict an earnings beat for the company, thanks to its Zacks Rank #4 and Earnings ESP of 0.00%.
Quality Systems, Inc. Price and EPS Surprise
Cardiovascular Systems Inc.CSII - Headquartered in St. Paul, MN, Cardiovascular is scheduled to report its second-quarter fiscal 2017 results. In the last reported quarter, the company registered an earnings beat of 66.67%.
Notably, Cardiovascular stands to gain from several favorable trends in the Peripheral and Coronary Artery Disease market space. Moreover, management is optimistic about engineering enhancements and higher production volumes which may continue to reduce unit cost in the quarters ahead.
Despite the bullish sentiments, our proven model does not conclusively show that the company is likely to beat earnings, given the combination of a Zacks Rank #2 and Earnings ESP of 0.00%. You can see the complete list of today's Zacks #1 Rank stocks here .
Cardiovascular Systems, Inc. Price and EPS Surprise
Don't miss on our full earnings release articles for these three stocks, as the actual results might hold some surprises!
Zacks' Top 10 Stocks for 2017
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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.