New York-based healthcare services provider Henry Schein, Inc. HSIC is slated to report its third-quarter 2015 financial numbers on Nov 4, before the opening bell.
Last quarter, the company had delivered a negative earnings surprise of 0.68%. However, Henry Schein’s earnings have outpaced the Zacks Consensus Estimate in three of the past four quarters, with an average beat of 1.43%. Let’s see how things are shaping up prior to this announcement.
Why a Likely Positive Surprise?
Our proven model shows that the company is likely to beat earnings because it has the right combination of two key ingredients.
Zacks ESP: Henry Schein has an Earnings ESP of +1.37%. That is because the Most Accurate Estimate is $1.48 while the Zacks Consensus Estimate is pegged lower at $1.46. This is a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Henry Schein has a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates. Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.
The combination of Henry Schein’s Zacks Rank #3 and +1.37% ESP makes us confident of a positive earnings beat at the company.
What is Driving the Better-than-Expected Earnings?
Henry Schein’s revenue growth has been consistently supported by niche acquisitions that provide access to additional product lines. Just after the close of second-quarter 2015, Henry Schein made a 50% ownership investment in Maravet – a leading animal health distributor in Romania. This investment in turn is expected to benefit Henry Schein’s East European presence. We believe the benefits of this acquisition will be reflected in the top-line outcome of the Animal Health business segment, in the third quarter results and beyond.
Moreover, as per earlier announcement of acquiring majority interest in its Danish counterpart – Jorgan Kruuse A/S; in September, Henry Schein completed the acquisition of 85% stake in Kruuse. The company expects this takeover to be neutral to its earnings per share, from the date of closing through the end of 2015, and accretive thereafter.
Now that the Kruuse acquisition is over, Henry Schein's animal health business is poised to expand further in 23 countries, including the U.S., Australia, New Zealand, Canada, China, Malaysia and 17 other nations in Europe.
Henry Schein’s impending collaboration with Cardinal Health also buoys optimism. During the second quarter of 2015, majority of Cardinal Health’s physician business customers that had been acquired, transitioned to Henry Schein.
Moreover, Henry Schein witnessed a year-over-year improvement of 4.3% in its operating cash flow during the last reported second quarter, as opposed to the decline that management observed in the first quarter. Management continues to believe the company will present a strong operating cash flow scenario through the rest of 2015.
In the last quarter’s earnings release, Henry Schein had reaffirmed its EPS guidance for 2015 in the range of $5.90–$6.00 representing annualized growth of 8–10%. The current Zacks Consensus Estimate for 2015 is pegged at $5.92, within the company's guided range.
On the flip side, severe currency headwind continues to remain as a major threat.
Other Stocks to Consider
Here are some other companies you may want to consider as our model shows they too have the right combination of elements to post an earnings beat this quarter:
Intra-Cellular Therapies, Inc. ITCI, earnings ESP of +10.61% and a Zacks Rank #1.
CoLucid Pharmaceuticals, Inc. CLCD, earnings ESP of +11.27% and a Zacks Rank #2.
Trevena, Inc. TRVN, earnings ESP of +25.71% and a Zacks Rank #3.
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