Stryker Corp. SYK is slated to release its first-quarter 2015 financials on Apr 21. Last quarter, the company missed the Zacks Consensus Estimate by 0.7%. Notably, Stryker’s earnings have lagged the Zacks Consensus Estimate in the last four quarters, with an average earnings miss of 0.9%.
Let’s see how things are shaping up prior to this announcement.
Factors to be Considered this Quarter
The new European regional headquarters (in Amsterdam) and the new operating model (transfer of intellectual property from other countries in Europe to the Netherlands, repatriation of $2 billion from Europe to the U.S.) are expected to improve Stryker’s position in the Western European market. The company is also poised to perform better in emerging markets like China and India.
However, unfavorable foreign exchange rate and pricing pressure prevail as near-term headwinds for Stryker. The declining Hips and Knee sales in the U.S. also remains a major concern. On the international front, market share loss in Japan – which is Stryker’s largest market internationally – will continue to hurt top-line growth.
Earnings Whispers
Our proven model does not conclusively show that Stryker is likely to beat the Zacks Consensus Estimate this quarter. 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) for this to happen. Unfortunately, that is not the case here as elaborated below.
Zacks ESP: Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. This leads to an ESP of -0.92% for Stryker as the Most Accurate estimate stands at $1.08 while the consensus estimate is pegged higher at $1.09.
Zacks Rank: Stryker has a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, we need to have a positive earnings ESP to be confident of an earnings surprise.
We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some other companies to consider instead as our model shows they have the right combination of elements to post an earnings beat this quarter.
Laboratory Corp. of America Holdings LH has an earnings ESP of +0.61% and a Zacks Rank #1 (Strong Buy).
Valeant Pharmaceuticals International VRX has an earnings ESP of +0.43% and a Zacks Rank #1.
Cognex Corp CGNX has an earnings ESP of +4.35% and bears a Zacks Rank #1.
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