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5 MedTech Stocks for Stellar Returns in Q3


While the Wall Street is gearing up for the third-quarter releases, the Republicans have lost another battle pertaining to the repeal of Affordable Care Act (ACA), or Obamacare, with the recent Graham-Cassidy bill defeat.

Sometimes by losing a battle you find a new way to win the war.” – President Trump.

However, recent developments suggest that tables might turn again. The President’s latest ‘Executive Order’ that aims to exempt certain Association health plans to buy health insurance from the core Obamacare schedule, can take the shape of a serious threat for the healthcare community at large. Also, Rep. Lindsey Graham’s promise to revisit the Graham-Cassidy legislation deserves a mention here.

Despite these issues, the MedTech industry has so far had a bullish run in 2017. Notwithstanding this, the third quarter is likely to take a hit from the policy debacle. In fact, the latest GOP defeat dampens probabilities of a new Republican healthcare reform with better tax paradigms, any time soon.

Here we take a sneak peek into two other burning issues that are likely to impact the quarterly numbers in the MedTech fraternity.

Tax Woes: At present, the point of focus at the Capitol Hill seems to be tax cuts. The MedTech community had been quite hopeful since the change in presidential power, as Trump’s proposed policies have been in favor of the abolition of the infamous 2.3% medical device sales tax. Undoubtedly, abolition of these tax paradigms are far from being achieved.

Added to this, a stronger dollar, pricing and shipping-related issues as well as core market challenges are likely to affect the quarterly numbers of MedTech majors this season.

Hurricanes Deal a Blow: Various reports suggest that the unfortunate occurrences of the hurricanes at the end of the third quarter are likely to mar revenues and earnings of several MedTech companies, primarily in Florida, Texas and Puerto Rico. MedTech major Medtronic MDT acknowledged the impact of the Hurricane Maria on its quarterly metrics. The company expects almost $250 million impact on revenues and earnings.

Apart from the natural calamities, a rise in unemployment (though short lived) and decline in consumer income coupled with increasing aggregate spending are likely to deal a heavy blow to MedTech numbers.

Stocks to Buy for Solid Returns in Q3

We have taken the help of the Zacks Stock Screener to shortlist MedTech stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) and are expected to yield solid results in the third quarter. We have zeroed in on stocks that andhave a favorable Growth Style Score of A or B. Our research shows that stocks with Style Scores of A or B, when combined with a Zacks Rank #1 or 2, offer the best investment opportunities. Furthermore, the estimate revision trend for the stocks has been solid for the current quarter.

IDEXX Laboratories, Inc. IDXX: This Zacks Rank #2 company has a Growth Score A.

IDEXX Laboratories is a developer, manufacturer and distributer of products and services primarily for the companion animal veterinary, livestock and poultry, water testing and dairy markets. The company expects livestock, poultry and dairy revenues to witness stellar growth in the quarter, with strong growth in China.

Over the last two months, three analysts moved north, compared to one movement in the opposite direction. The Zacks Consensus Estimate increased 1.4% for the current quarter over the same time frame. The company is expected to see sales growth of 10.1% in the quarter to be reported. Furthermore, earnings are expected to increase 20.7% on a year-over-year basis.

IDEXX Laboratories, Inc. Price and Consensus

Steris Corp. (STE): This Zacks Rank #2 company has a Growth Score of B.

Over the recent past, Steris has been strategically pursuing expansion into adjacent markets through acquisitions and dilutions. Earlier this year, the company sold the UK Linen business and has of late completed the divestment of the U.S. linen business.

Coming to the estimate revision trend for the current quarter, one analyst moved north compared to one movement in the opposite direction. With the completion of the Synergy Health deal, Steris’ combined business is expected to gain market traction overseas. Additionally, a strong cash balance position is encouraging. Steris is expected to witness 7.1% growth in earnings in the quarter to be reported, on a year-over-year basis.

STERIS PLC Price and Consensus

K2M Group Holdings, Inc. (KTWO): This Zacks Rank #2 company has a Growth Score of A. The estimate revision trend for the stock has been solid with one upward estimate revision and one down in the last two months. The Zacks Consensus Estimate for the current quarter increased 6.3% over the same time frame.

With solid operational execution, K2M Group is expected to enjoy an edge in the spinal fusion market in the quarter. Furthermore, significant progress on product development in the 3D printed products portfolio is a positive.

The company is expected to witness 12.8% growth in sales and 18.4% rise in earnings in the third quarter.

K2M Group Holdings, Inc. Price and Consensus

Tandem Diabetes Care, Inc. (TNDM): This Zacks Rank #2 company has a Growth Score of A.

The demand for Tandem’s next-generation t:slim X2 pump is expected to stay high. Added to this, stellar growth in insulin pump sales is expected to drive the company’s third-quarter numbers. The estimate revision trend for the stock has been solid with one estimate moving upward, compared to three downward in the last two months. The Zacks Consensus Estimate for the current quarter rose 2.5% over the same time frame.

The company is expected to witness 112.4% growth in sales and 60.1% rise in earnings in the third quarter.

Tandem Diabetes Care, Inc. Price and Consensus

Intersect ENT, Inc. (XENT): This Zacks Rank #2 stock has a Growth Score of B.

After a successful launch in the near past, PROPEL Contour is expected to be the key driver of third-quarter sales. The company's initial products, PROPEL and PROPEL mini, are drug-eluting implants for use in patients with chronic sinusitis. It offers products and therapies for ear, nose, and throat surgeons to improve treatment of patients with chronic diseases.

Intersect is expected to witness 16.3% year-over-year growth in sales and 10.8% rise in earnings in the quarter to be reported.

Intersect ENT, Inc. Price and Consensus

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