As expected, Medical Products companies within the broader Medical sector that have reported so far this earnings season have come up with lackluster numbers. Most of the companies across various sub industry domains that have reported have incurred steeper losses in the second quarter compared with the first due to the full-quarter impact of the coronavirus mayhem.

Still, even amid the worldwide manufacturing halt and disruption in supply chain, the medical space seems to have been more resilient compared to many others, thanks to the emergency medical procedures that have been unavoidable even amid the pandemic. Also, this sector’s several new COVID-19-related healthcare support products have performed well, thus contributing to Q2 performance.

Per the latest Earnings Preview, Medical is one of the three among the 16 major Zacks sectors set to report year-over-year revenue growth. The sector is expected to report break-even earnings and revenue growth of 1.7% for the second quarter.

However, both the earnings and revenue projections indicate a significant decline from the first-quarter 2019 scorecard, which reflected earnings growth of 9.2% on 10.2% revenue growth.

The Zacks Medical Product sector has witnessed an increase of 1.3% in the past year. It currently carries a Zacks Sector Rank in the bottom 27% (185 out of 256 industries).

Major Trends in Medical Product Space in Q2

COVID-19-Related Developments Generate Revenues: Since the U.S. government authorized the emergency use of IVD tests for the diagnosis of COVID-19 earlier this year, a number of medical device and diagnostic testing companies have received EUA for their  test kits. Authorizations for emergency PPE and emergency ventilator and ventilator substitutes followed eventually. Undoubtedly, these companies have been reaping the full benefit of the present healthcare situation and are expected to have made significant profits in the second quarter.

Abbott ABT, over the past few months, has developed and launched several COVID-19 tests across its testing platform for both laboratory and rapid point-of-care settings. Till its second-quarter earnings (released on Jun 16), the company sold about 40 million tests across all its platforms globally. Molecular testing particularly was in high demand during this period.

Similarly Thermo Fisher Scientific TMO (that released its second-quarter numbers on Jul 22) delivered an outstanding quarterly performance, leveraging on its capacity to extend support amid the pandemic. In the quarter, it generated $1.3 billion of COVID-19 related revenues.

We expect to see a similar trend in revenue generation when ResMed (RMD), a major player in the field of sleep disorder breathing, reports fourth-quarter fiscal 2020 (to be released on Jul 5) results. In its last-reported quarter, ResMed saw significantly ramped-up demand for its critical care products. Accordingly, it has scaled up production of ventilators, masks and other respiratory devices since March.

Emergency Procedures Gain Traction: Through the second quarter, the healthcare industry, all over the globe, continued to postpone elective healthcare activities to focus on COVID-19 treatments. However, emergency healthcare support could not be postponed. Companies that provide renal care, cardiovascular support, oncology support and diabetes management products are expected to have maintained their usual growth trend despite slight disruption.

Tandem Diabetes Care TNDM reported strong domestic pump sales and pump shipments for the second quarter banking on growing global demand for t:slim X2 insulin pump. Oncology testing company, Exact Sciences’ EXAS Cologuard business, after hitting its lowest point in April, improved through June.

Global Supply Chain Disruption Mars Growth in Q2

Apart from the Medical product companies, which have been working on coronavirus-related treatment/research/and or health support, or providing non-elective cares, the rest performed dismally on lower product demand in the second quarter. Companies with a huge international base were among the hardest hit due to the imposition of widespread stay-at-home orders across the nations. These orders led to customers deferring their non-essential and elective procedures, thus affecting the companies’ revenues.

Boston Scientific, which has a strong global base, witnessed a notable reduction in product demand across each of its core business segments and geographies (due to the massive disruption in global supply chain and postponement of non-COVID 19 healthcare activities).

Zacks Methodology

Given the high degree of diversity in the Medical Products industry, finding the right stocks with the potential to beat estimates might be quite a daunting task.

However, our proprietary Zacks methodology makes this fairly simple.

We are focusing on stocks that have the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Our research shows that for stocks with this combination, chances of an earnings surprise are as high as 70%.

Earnings ESP provides the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Here we present three stocks that are expected to beat earnings estimates in this reporting cycle.

TransMedics Group, Inc. TMDX: The company’s non-deferrable organ transplant therapy business for patients with end-stage lung, heart and liver failure has remained uninterrupted amid the COVID-19 situation.

The combination of TransMedics’ Earnings ESP of +16.28% and a Zacks Rank #2 raises the possibility of an earnings surprise in the to-be-reported quarter.

The company is scheduled to release results for the second quarter of 2020 on Aug 5, after market close.

Health Catalyst, Inc. HCAT: Amid the COVID-19-led situation, the company’s data and analytics technology and services for healthcare organizations have been in demand as these offer seamless contactless services. This is expected to have boosted the company’s second-quarter revenues.

The company is scheduled to release second-quarter results on Aug 11.

Health Catalyst has an Earnings ESP of +5.48% and a Zacks Rank #2.

ResMed RMD is expected to have seen higher demand for its critical care products, particularly ventilators, masks and other respiratory devices amid the pandemic. This is expected to have boosted the company’s fourth-quarter fiscal 2020 revenues.

ResMed is scheduled to report its fourth-quarter results on Aug 5.

ResMed has an Earnings ESP of +20.93% and a Zacks Rank #2.

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