Will Henry Schein (HSIC) Surprise Q4 Earnings Estimates?

Healthcare services provider Henry Schein, Inc.HSIC is slated to report its fourth-quarter and full year 2015 earnings on Feb 10, before the opening bell.

Last quarter, the company had delivered a positive earnings surprise of 6.16%. In fact, Henry Schein's earnings have outpaced the Zacks Consensus Estimate in 3 of the past 4 quarters, with an average beat of 2.40%. Let's see how things are shaping up prior to this announcement.

Factors at Play

Foreign currency fluctuation continues to be a deterrent to the company's growth. Unfavorable foreign currency exchange rates accounted for a decline of 7.1% in Henry Schein's overall third quarter revenue growth and had a negative impact of 6 cents on the quarter's EPS.

In view of foreign exchange woes, Henry Schein further narrowed its adjusted EPS guidance for 2015. The company now expects EPS in the range of $5.90-$5.96, compared to the previous guidance range of $5.90-$6.00. The current Zacks Consensus Estimate of EPS is $5.94, within the company's guided range.

However, in the dental business segment (which holds the lion's share), the company delivered a solid 3.6% constant currency internal growth during the third quarter, on the back of a 2.9% improvement in dental consumable merchandise and 5.3% growth in dental equipment sales revenue. We expect to witness similar legacy in the fourth quarter results as well.

Meanwhile, Henry Schein has bought back approximately 261,000 shares for $37.7 million in the quarter and is left with $149 million of future repurchase authorization. Post the third-quarter earnings release, management remained committed to its goal of repurchasing $200-$300 million worth of stock through 2015. The company's consistent buyback activity is encouraging.

Although Henry Schein witnessed a decline in its year-over-year operating cash flow figure in the third quarter, management continues to believe the company will present a strong operating cash flow scenario in full year 2015.

We encouragingly note that, management expects to win new customers in its North American business within the Medical segment in the near term, on the back of the company's recently completed buyout of Cardinal Health's physician business, which bolstered internal sales growth in the segment in the third quarter. Management hopes to report completion of integration of this strategic agreement in the fourth quarter of 2015.

Henry Schein's revenue growth has been consistently supported by niche acquisitions that provide access to additional product lines. In Nov 2015, Henry Schein announced its plans to acquire an 80.1% interest in Vetstreet - a leading provider of marketing solutions and health information analytics to veterinary clinics and animal health manufacturers. The company expects this transaction to meaningfully complement its U.S. Animal Health business and be accretive to the company's earnings by 1-2 cents in 2017 and beyond.

In the same month, the company also declared that it plans to complete the acquisition of a 90% ownership stake in Dental Trey - an Italy-based distributor of dental consumable merchandise and equipment, in the fourth quarter. This deal is expected to be accretive by less than a penny to the company's earnings in 2017 and beyond.

Earnings Whispers

Our proven model does not conclusively show that Henry Schein is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Henry Schein has an earnings ESP of 0.00%. That is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.65.

Zacks Rank: Henry Schein has a Zacks Rank #3 which increases the predictive power of ESP. However, a 0.00% ESP makes surprise prediction difficult.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies you may want to consider as our model shows these have the right combination of elements to post an earnings beat this quarter:

Magellan Health, Inc. MGLN , earnings ESP of +5.56% and a Zacks Rank #1.

Centene Corp. CNC , earnings ESP of +2.35% and a Zacks Rank #1.

Alcobra Ltd. ADHD , earnings ESP of +25.00% and a Zacks Rank #2.

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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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