Medical instruments giant, Edwards Lifesciences Corp. (EW), is slated to report its third-quarter 2014 earnings results on Oct 23. Last quarter, the company had posted a 14.3% positive surprise.
Moreover, Edwards Lifesciences has delivered positive earnings surprises in all the past four quarters with an average beat of 9.7%. Let's see how things are shaping up for this announcement.
Factors at Play
In the second quarter, Edwards successfully launched its non-invasive monitoring technology – the ClearSight system – in the U.S. The company anticipates positive adoption of this system resulting in substantial sales.
This, in turn, is expected to significantly benefit the company's critical care product line in the coming quarters of 2014. This induced management to raise underlying sales growth expectation for the segment at the second quarter conference call.
Currently, the company is engaged in replacing SAPIEN by SAPIEN XT – the latest in the SAPIEN family of valves – in the hospitals, which is used to treat high-risk and inoperable heart patients. The company expects most of this process to be over by the end of the third quarter. We believe this conversion will expand Edwards' customer base reaching out to a greater number of heart patients, thereby enhancing Edwards' profitability, which is expected to be reflected in the coming two quarterly earnings results.
The fact that rival major Medtronic's CoreValve has been granted U.S. FDA approval in Jan 2014 poses concern,given that the medical devices industry is a highly competitive space. However, with the recent and timely FDA approval of the comparable next-generation transcatheter valve SAPIEN XT, Edwards is currently well positioned to continue dominating and strengthening its foothold in the U.S. transcatheter aortic heart valve market.
For the third quarter of 2014, Edwards expects total sales in the range of $530–$570 million and adjusted earnings per share of 66–72 cents. The Zacks Consensus Estimate for revenues of $544 million lies within the company's guidance while the same for earnings of 72 cents coincides with the upper limit of the company's guided range.
Earnings Whispers?
Our proven model does not conclusively show that Edwards is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: Edwards has an earnings ESP of 0.00%. That is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 72 cents.
Zacks Rank: Edwards has a Zacks Rank #2 (Buy) which increases the predictive power of ESP. However, a 0.00% ESP makes surprise prediction difficult.
On the other hand, we caution against stocks with Zacks Rank #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 companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
Hospira Inc. (HSP), earnings ESP of +7.55% and a Zacks Rank #3 (Hold).
Hologic Inc. (HOLX), earnings ESP of +5.41% and a Zacks Rank #3.
Heartware International Inc. (HTWR), earnings ESP of +21.21% and Zacks Rank #3.
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