After Trump’s failed efforts to repeal and replace Obamacare, Trump introduced the “skinny” repeal that calls for doing away with parts of Affordable Care Act (ACA) or Obamacare like “individual mandate,” “employer mandate” and “Cadillac taxes”.
Last month, the Republicans lost the debate over skinny repeal. The United States witnessed a political dilemma after three Republicans voted in favor of the existing Healthcare Act. They probably decided to support the existing Healthcare Act based on data provided by the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT). As per the report, with the abolition of Obamacare, another 17 million people will be uninsured in 2018, 27 million more in 2020 and the count is expected to increase to 32 million in 2026.
The cancellation or withdrawal of the individual and employer mandate might have made health insurance and contracted health insurance coverage expensive. This will significantly dent demand for healthcare services, impacting the medical device industry as a whole.
However, the MedTech industry is looking forward to the abolishment of the major healthcare taxes, including Cadillac tax and the 2.3% MedTech tax. Although the Republicans failed to pass the skinny repeal, it has been able to delay the Cadillac tax until 2026.
Thanks to the postponement of the Cadillac tax, the medical device industry is hopeful that the 2.3% medical device tax would be eradicated soon.
In such a mixed scenario, we feel investors should place their bets on large cap stocks that delivered positive average earnings surprises in the last reported four quarters and are witnessing upward revisions in earnings estimates.
Stocks to Pick
We have selected four medical device stocks with the help of the Zacks Stock Screener (hyperlink) to shortlist Medical Device stocks which are poised for impressive returns over the next five years. These stocks boast a Zacks Rank #1 (Strong Buy) or #2 (Buy), and has market cap of more than $5 billion.
Edwards Lifesciences Corporation EW: Edwards Lifesciences promises a long-term expected earnings growth rate of 15.2%. The stock sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
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Looking at the estimate revision trend for the current quarter, in the last two months, estimates increased 6.1% to 87 cents per share.The stock has delivered positive earnings surprises in the last four quarters, averaging 10.8%. Coming to price performance, over the last six months, Edwards Lifesciencesrepresented a stellar return of 25.9%, much higher than the broader industry’s gain of roughly 9.9%.
IDEXX Laboratories, Inc. IDXX: The stock has a Zacks Rank #2. The stock has a long-term earnings growth rate of 19.8%. Over the last four quarters, the company delivered positive earnings surprises averaging 9.3%.
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In fact, the estimate revision trend for the current quarter seems favorable over the last two months, as estimates increased 1.4% to 75 cents per share. Over the last year, IDEXX represented a return of 35.7%, beating the broader industry’s 6.3% gain.
The Cooper Companies, Inc. COO: The stock carries a Zacks Rank #2 and promises long-term earnings growth of 10.8%. Over the last four quarters, the company delivered positive earnings surprises averaging 4.8%.
In this regard, current quarter estimates increased 0.4% to $2.62 per share over the last two months.
For the last six months, the company represents a stellar return of 21.4%, much better than the broader industry’s rally of roughly 5.4%.
ICON plc, ICLR: The stock carries a Zacks Rank #2 and long-term earnings growth of 12.5%. Estimate revision trends for the current quarter look promising, with estimates increasing 4.8% to $1.31 per share in the last two months. The stock has delivered positive earnings surprises in the last four quarters, averaging 0.8%.
Coming to price performance, over the last six months ICON represented a stellar return of 38.6%, much higher than the broader industry’s increase of roughly 3.0%.
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