CAH Vs. HOLX: Which Will Fare Better This Earnings Season?

We are in the thick of the fourth-quarter earnings season, with 251 S&P 500 members having reported their numbers. The current earnings season has seen an above-average proportion of positive surprises, a favorable revision trend for the present and upcoming quarter along with a strong revenue momentum.

Per the latest Earnings Preview, total earnings for the companies that have reported so far are up 16% year over year on 10.5% higher revenues. Of the total, 80.5% beat earnings and 78.1% surpassed revenue estimates. With 92 S&P 500 members lined up to release their quarterly results this week, we are decidedly bullish on the equity market, which is gradually demonstrating a sequential improvement.

MedTech Earnings So Far

Medical, one of the 16 Zacks sectors, is expected to stand out this quarter. The sector benefits from favorable consumer behavior, growing prevalence of minimally-invasive surgeries, demand for liquid biopsy tests, use of IT for ensuring quick and improved patient care along with the shift of the payment system to a value-based model.

This is evident from the results of MedTech heavyweights like Laboratory Corporation Of America Holdings (NYSE:LH) or LabCorp and Becton, Dickinson and Company (NYSE:BDX) . The companies ended the fourth quarter on a solid note with earnings beating the Zacks Consensus Estimate.

An upbeat FY18 guidance also instills confidence. In this regard, LabCorp’s adjusted EPS guidance for 2018 is in the range of $11.30-$11.70. Further, Becton, Dickinson and Company expects adjusted earnings per share in the band of $10.85-$11.00, up from the previous $10.55-$10.65.

For the fourth quarter, the expected earnings growth rate for the sector is 6.6% on 5.7% revenue growth.

CAH or HOLX: Which Will See Stronger Earnings?

Let’s take a look at two major MedTech stocks Cardinal Health (NYSE:CAH) and Hologic, Inc. (NASDAQ:HOLX) slated to release their quarterly reports on Feb 8:

Cardinal Health is scheduled to release results before the market opens. Notably, the Zacks Consensus Estimate for second-quarter fiscal 2018 revenues is pegged at $34.66 billion, up 4.6% year over year. With a diverse product portfolio, Cardinal Health is one of the largest distributors of pharmaceuticals and medical supplies.

However, the Zacks Consensus Estimate for second-quarter earnings is pegged at $1.14, down 14.9% year over year. The company faces the risk of losing considerable business in case of loss of a major customer, which will severely impair the bottom line. In fact, Cardinal Health announced the loss of a large mail-order customer, Prime Therapeutics. This dented revenues at the company’s Specialty and Pharmaceutical Distribution segment in the last quarter.

Cardinal Health, Inc. Price and EPS Surprise

Cardinal Health, Inc. Price and EPS Surprise | Cardinal Health, Inc. Quote

Moreover, our quantitative model does not conclusively show a beat for Cardinal Health. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat estimates. Cardinal Health has a Zacks Rank #2 and an Earnings ESP of -0.70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter. (read more: What's in Store for Cardinal Health in Q2 Earnings?).

Hologic is set to report first-quarter fiscal 2018 results, after market close. Notably, the Zacks Consensus Estimate for earnings is at 49 cents, down 5.8% on a year-over-year basis. The Diagnostics segment is expected to record revenues of $285 million, down 12.3% from the year-ago quarter. Also, the Zacks Consensus Estimate of $279 million shows a 14.2% decline year over year. This can be blamed on the estimated loss from the divested blood screening franchise. Also, the company has been seeing weak sales of cytology and perinatal products of late.

On the bright side, the Zacks Consensus Estimate for first-quarter revenues is pegged at $787.7 million, up 7.3% year over year. The company is expected to see stellar performance by Molecular Diagnostics, a major sub-segment of Diagnostics. In the United States, the company is expected to gain from an expanding market and utilization of fully automated Panther system.

Hologic, Inc. Price and EPS Surprise

Hologic, Inc. Price and EPS Surprise | Hologic, Inc. Quote

Our quantitative model indicates an earnings beat for Hologic this quarter as it has a favorable combination of an Earnings ESP of +1.42% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

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