Medical is a major sector in the S&P 500 cohort that is expected to report earnings growth in third-quarter 2016. However, the Q3 earnings season has just begun and growth trends are expected to be affected due to weaknesses in the energy, transportation and auto sectors.
As per the latest Earnings Trends report, overall third-quarter earnings for the S&P 500 companies are expected to be down 2.9% from the year-ago quarter on 1.2% growth in revenues.
On the other hand, Medical is estimated to report earnings growth of 2.7% on revenue improvement of 7.4%. Notably, Medical device is an important sector of the medical universe and is expected follow the same earnings growth trajectory in the quarter.
Here we take a sneak peek into two major medical device companies lined up to report their Q3 results on Oct 18, before the opening bell.
St. Paul, MN-based manufacturer and distributor of cardiovascular medical devices, St. Jude Medical STJ is likely to be affected by foreign exchange movements, a sluggish macro-economic scenario and pricing pressure.
Additionally, the withdrawal of the financial guidance for fiscal 2016 as a result of its planned merger with Abott Laboratories ABT is expected to mar the growth prospects for St. Jude Medical.
In fact, our proven model does not conclusively show that the company is likely to beat earnings, given the combination of a Zacks Rank #4 (Sell) and Earnings ESP of 0.00%.
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.
However we note, St. Jude Medical’s results compared favorably with the Zacks Consensus Estimate in the last four quarters, with an average beat of 0.8%. (Read more: St. Jude Medical Q3 Earnings: What's in the Cards?)
We are particularly upbeat about Pleasanton, CA-based-Natus Medical Inc.’s BABY innovative pipeline and strategic tie-ups made in the recent past (acquisition of RetCam). However, lacklustre demand trends in international markets and low revenue forecast are major dampeners.
Our proven model also does not conclusively show that the company is likely to beat earnings, given the combination of a Zacks Rank #5 and Earnings ESP of 0.00%.
Meanwhile, on the brighter side, Natus Medical’s results compared favorably with the Zacks Consensus Estimate in the last four quarters, with an average beat of almost 8.8%. (Read more: Natus Medical Q3 Earnings: What's in the Cards?)
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Zacks Investment Research