Will Core MedSurg Segment Drive Stryker's (SYK) Q2 Earnings?

Stryker Corporation (NYSE:SYK) is scheduled to release second-quarter 2019 results on Jul 25 after the closing bell. In the last reported quarter, the company delivered a positive earnings surprise of 2.2%. Further, it has an average four-quarter positive surprise of 1.5%.

Which Way Are Estimates Trending?

The Zacks Consensus Estimate for second-quarter earnings per share is pegged at $1.94, indicating an improvement of 10.2% from the year-ago quarter.

The same for revenues stands at $3.60 billion, suggesting growth of 8.5% from the prior-year quarter.

Let’s take a look at how things are shaping up prior to this announcement.

MedSurg in Focus

This segment consists of surgical instruments plus endoscopic and emergency medical equipment. Notably, it has been consistently driving Stryker’s top line.

It is encouraging to note that for the quarter to be reported, the Zacks Consensus Estimate for the segment’s revenues stands at $1.57 billion, up 7.7% year over year.

MedSurg has three subsegments — Endoscopy, Instruments and Medical.

MedSurg is likely to deliver a solid performance in the to-be-reported quarter, primarily driven by anticipated growth across its aforementioned three subsegments. The segment is expected to deliver considerable worldwide organic growth in the to-be-reported quarter fueled by better-than-expected performance at instruments.

Other Factors at Play

In the second quarter, the company is likely to have displayed broad-based strength across its divisions and regions. In fact, possible robust performance in emerging markets and Europe is expected to aid the upcoming quarterly results. This is supported by the second-quarter earnings projection wherein the adjusted EPS is estimated between $1.90 and $1.95 per share. Further, anticipated sales growth at the high-end of Medtech will contribute to the bottom-line growth in the to-be-reported quarter.

Further, the company’s Orthopaedics segment is expected to have witnessed strong organic growth, attributable to solid performance at the Knee sub segment. Moreover, sustained strong demand for Mako TKA (Total Knee Arthoplasty) platform or cementless knee and other 3D printed products will aid performance at this segment. For the quarter to be reported, the Zacks Consensus Estimate for this segment’s sales is pegged at $1.27 billion, indicating a year-over-year improvement of 3.7%.

With respect to Neurotechnology & Spine segment, a bankable performance within the NeuroTech product lines and the K2M buyout will drive results. Moreover, sustained solid demand in Europe, China and Japan will to lead to segmental growth, internationally. For the upcoming quarterly announcement, the Zacks Consensus Estimate for the segment’s sales stands at $762 million, suggesting year-over-year growth of 19.2%.

The company remains on track to achieve its full-year target of 30 to 50 basis points operating margin expansion backed by top-line growth and continued progress in cost transformation growth initiatives. Consequently, we expect the company to witness a similar trend in the to-be-reported quarter.

With respect to sales, the company has likely witnessed noticeable growth in the to-be-reported quarter with a projected continued sequential ramp in sales for the full year. The Zacks Consensus Estimate for revenues is pegged at $3.60 billion, indicating year-over-year improvement of 8.5%.

Additionally, on its last earnings call, the company noted that foreign exchange rates are expected to affect net sales by around 1.5% in the second quarter, while the EPS might be adversely impacted within the band of 1-3 cents.

Here’s What the Quantitative Model Predicts:

Our proven Zacks model clearly shows that a company with a solid Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has good chances of beating estimates if it also has a positive Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stryker has a Zacks Rank #2, which increases the predictive power of ESP. It also has an Earnings ESP of +0.24%, together which a likely positive surprise is indicated for the stock this reporting cycle.

Conversely, stocks with a Zacks Rank #4 (Sell) or 5 (Strong Sell) should never be considered going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks Worth a Look

Here are some other medical stocks worth considering as these too have the right combination of elements to post an earnings beat this quarter.

AmerisourceBergen (NYSE:ABC) has an Earnings ESP of +0.82% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

DENTSPLY SIRONA (NASDAQ:XRAY) has an Earnings ESP of +6.95% and a Zacks Rank #1.

Amedisys, Inc. (NASDAQ:AMED) has an Earnings ESP of +1.91% and a Zacks Rank #1.

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