Medical Products Stocks' Earnings on Jan 31: ZBH, TMO, ABC
Zacks Equity Research
Updated
More than one-third of the S&P 500 members (170 companies consisting of 19.2% of the total market cap), have already reported their Oct–Dec 2016 quarter’s earnings results. Based on the numbers, our latest Earnings Preview exhibits an improving trend so far. The earnings and revenue growth performances are on track to beat the last seven consecutive quarters’ performance. Till Jan 27, total earnings for these S&P 500 members have gone up 6% on 3.1% increase in revenues.
The medical sector, one of the 16 broader Zacks sectors is no exception to this positive trend. So far 25.9% members from this sector have come up with their quarterly earnings releases with earnings and revenue beat standing at impressive levels of 71.4% and 50%, respectively. With more and more companies lining up for their earnings announcements, the aggregate growth pace of this sector is expected to pick up further steam. The sector is likely to see 2.9% earnings growth on 5.7% higher revenues in the quarter.
What’s in Store for the Med-Products Space?
The Zacks categorized Medical - Products industry is an essential part of the broader Medical sector which holds a lot of promise at this moment. According to a survey by KPMG, medical device companies plan to spend more than 6% of revenues on R&D/innovation, which is way above the R&D investments made by other manufacturing companies. The innovation and breakthroughs can come in the form of new products or surgical techniques or cost-effective products targeting the emerging markets.
Let’s take a look at the major Medical Product stocks slated to release their earnings results on tomorrow:
Zimmer Biomet Holdings, Inc. ZBH: We expect Zimmer Biomet, a stalwart from our Medical Product subsector, to beat expectations when it reports fourth-quarter 2016 results. Last quarter, the company delivered in line earnings. However, it recorded an average beat of 2.29% for the trailing four quarters.
Even though Zimmer Biomet recorded a disappointing performance in the third quarter, we are impressed with the 23.9% improvement recorded by the Spine & CMF segment. Since the end of the third quarter, management has been trying to develop its spine portfolio to strengthen its market position. In the recent past, the company has been observed to focus on research and development and product launches at this segment.
Our proven model shows that Zimmer Biomet is likely to beat earnings because it has the right combination of two key ingredients. 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. You can see the complete list of today’s Zacks #1 Rank stocks here.
Zimmer Biomet currently carries a Zacks Rank #3 and has an Earnings ESP of +0.47%. We note that, while a favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise, a bullish Zacks Rank increases the predictive power of the ESP (read more: Zimmer Biomet Q4 Earnings: A Surprise in the Cards?).
Zimmer Biomet Holdings, Inc. Price and EPS Surprise
Zimmer Biomet Holdings, Inc. Price and EPS Surprise | Zimmer Biomet Holdings, Inc. Quote
Thermo Fisher Scientific, Inc. TMO: This medical product maker is scheduled to report fourth-quarter and full-year 2016 results before the opening bell. Last quarter, the company posted a positive earnings surprise of 3.05%. In the trailing four quarters, the company posted an average beat of 2.12%.
The recent acquisition of FEI is the highlight of the to-be reported quarter. We are looking forward to the integration and synergies from Affimetrix, another mega takeover by Thermo Fisher, which is expected to boost its offerings in the fast-growing flow cytometry market. Management expects the company to expand its footprint in the emerging markets of China, South Korea, Southeast Asia and India. The growth is likely to be in applied markets such as environmental and food safeties as well as life science. We are also upbeat about the significant product launches in the fourth quarter and an enhancement in the company’s customer value proposition.
However, we are apprehensive about Thermo Fisher citing around four less days’ influence on its fourth quarter organic revenue growth number. The company expects that these lesser number of days may result in essentially flat year-over-year organic growth performance.
While a favorable Zacks Rank #3 increases the predictive power of the ESP, a -0.42% ESP makes a surprise prediction uncertain (read more: Will Thermo Fisher Beat Earnings Estimates in Q4?).
Thermo Fisher Scientific Inc Price and EPS Surprise
AmerisourceBergen Corp. ABC: The company is scheduled to report its first-quarter fiscal 2017 results. AmerisourceBergen’s track record has been quite impressive, with the company comfortably beating estimates in each of the four trailing quarters. In the last reported quarter, it recorded a positive earnings surprise of 6.56%, bringing the four-quarter average to a positive 5.64%.
The company’s pharmaceutical distribution segment continues to face headwinds in the form of contract renewals and lower generic inflation. The AmerisourceBergen Drug Corporation (ABDC) business is also being affected by several factors, including accelerating deflation of generic drugs and lower contribution from generic launches. However, the company renewed its relationship with the largest health systems customer and has been making persistent efforts to address the headwinds in the ABDC segment. This can boost the top line to an extent in the fiscal first quarter.
AmerisourceBergencurrently carries a Zacks Rank #2 which increases the predictive power of the ESP. However a -1.61% Earnings ESP makes the surprise prediction difficult. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
(Read more: AmerisourceBergen Q1 Earnings: Will It Disappoint?).
AmerisourceBergen Corporation (Holding Co) Price and EPS Surprise
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