Surmodics Stock Down Despite Q1 Earnings Beat, Gross Margin Up

Zimmer Biomet Holdings, Inc. ZBH is scheduled to report fourth-quarter 2024 results on Feb. 6, before market open.

See the Zacks Earnings Calendar to stay ahead of market-making news.

In the last reported quarter, the company’s earnings of $1.74 missed the Zacks Consensus Estimate by 0.57%. ZBH beat earnings estimates in three of the trailing four quarters and missed on one occasion, the average earnings surprise being 1.76%.

Q4 Estimates for ZBH

The Zacks Consensus Estimate for revenues is pegged at $2.01 billion, suggesting a 3.7% rise from the year-ago reported figure.

The Zacks Consensus Estimate for earnings is pinned at $2.30 per share, indicating a 4.6% improvement from the year-ago reported number.

The Zacks Consensus Estimate for fourth-quarter earnings has been steady over the past 90 days.

Zimmer Biomet Holdings, Inc. Price and EPS Surprise

Zimmer Biomet Holdings, Inc. price-eps-surprise | Zimmer Biomet Holdings, Inc. Quote

Factors at Play for ZBH's Q4 Earnings

Zimmer Biomet is likely to have experienced strong growth in the fourth quarter on the back of strong performance across its business segments.

The Hips business is expected to have witnessed growth banking on the company’s comprehensive suite of solutions in navigation in direct anterior stems and surgical impactors. The company is expected to have generated strong sales with Z1, the new triple-taper hip system for interior heap implant procedures, and the automated hip surgical impactor system HAMMR. Further, robotics and platforms in Navigation like OrthoGrid are expected to have gained market share in the fourth quarter. Following the completion of the OrthoGrid acquisition in the fourth quarter, the company now has a complete product portfolio in hips.

Banking on these developments, the company is expected to report a strong revenue increase within this category in the fourth quarter.

Our model estimates ZBH’s total Knee business to report 3.5% year-over-year growth in the fourth quarter.

Within the Knees business, the company earlier faced some challenges from a supply standpoint, which were expected to be resolved in the latter half of 2024. Meanwhile, Zimmer Biomet is likely to have gained from the ongoing rapid traction of the cementless Persona OsseoTi in the fourth quarter. Further, the recently launched Persona IQ study, the shortest TEM for Persona IQ, is expected to have driven continued uptake of this differentiated technology in the fourth quarter.

During the fourth quarter, Zimmer Biomet received FDA clearance for Persona SoluTion Porous Plasma Spray Femur, a total knee implant component, and FDA’s premarket application supplement approval for the Oxford Cementless Partial Knee. These developments might have had a positive impact on the company’s fourth-quarter top-line performance.

As per our model, the total Knee business is expected to report 5.5% year-over-year growth this time around.

In the fourth quarter, the S.E.T business is expected to have continued its growth run led by key areas like CMFT, upper extremities and sports. The recent FDA approval of OsseoFit Stemless Shoulder System for total shoulder replacement is expected to have contributed to the fourth-quarter top line.

Our model estimates ZBH’s total S.E.T business to report 7.3% year-over-year growth for the fourth quarter.

What Our Model Suggests for ZBH

Per our proven model, a stock with a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a higher chance of beating estimates. This is not the case here, as you can see below.

Earnings ESP: Zimmer Biomet has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company currently carries a Zacks Rank #4 (Sell).

Stocks Worth a Look

Here are some medical stocks worth considering, as these have the right combination of elements to post an earnings beat this reporting cycle.

Masimo MASI has an Earnings ESP of +4.05% and a Zacks Rank #1. The company is set to release fourth-quarter 2024 results on Feb. 25. You can see the complete list of today’s Zacks #1 Rank stocks here.

MASI’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 17.10%. The Zacks Consensus Estimate for the company’s fourth-quarter EPS indicates an increase of 14.4% from the year-ago quarter reported figure.

Merit Medical Systems MMSI has an Earnings ESP of +3.03% and a Zacks Rank #2. The company is slated to release fourth-quarter 2024 results on Feb. 25.

MMSI’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 6.42%. The Zacks Consensus Estimate for Merit Medical’s fourth-quarter EPS suggests an increase of 2.5% from the year-ago quarter reported figure.

Cencora COR has an Earnings ESP of +0.71% and a Zacks Rank #2. The company is set to release first-quarter fiscal 2025 results on Feb. 2.

The company’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 2.45%. The Zacks Consensus Estimate for COR’s first-quarter EPS implies an increase of 7% from the year-ago reported figure.

Zacks Investment Research

Wall Street expects flat earnings compared to the year-ago quarter on lower revenues when Avantor, Inc. (AVTR) reports results for the quarter ended December 2024. While this widely-known consensus outlook is important in gauging the company's earnings picture, a powerful factor that could impact its near-term stock price is how the actual results compare to these estimates.

The stock might move higher if these key numbers top expectations in the upcoming earnings report, which is expected to be released on February 7. On the other hand, if they miss, the stock may move lower.

While the sustainability of the immediate price change and future earnings expectations will mostly depend on management's discussion of business conditions on the earnings call, it's worth handicapping the probability of a positive EPS surprise.

Zacks Consensus Estimate

This company is expected to post quarterly earnings of $0.25 per share in its upcoming report, which represents no change from the year-ago quarter.

Revenues are expected to be $1.71 billion, down 0.7% from the year-ago quarter.

Estimate Revisions Trend

The consensus EPS estimate for the quarter has been revised 1.31% lower over the last 30 days to the current level. This is essentially a reflection of how the covering analysts have collectively reassessed their initial estimates over this period.

Investors should keep in mind that an aggregate change may not always reflect the direction of estimate revisions by each of the covering analysts.

Earnings Whisper

Estimate revisions ahead of a company's earnings release offer clues to the business conditions for the period whose results are coming out. This insight is at the core of our proprietary surprise prediction model -- the Zacks Earnings ESP (Expected Surprise Prediction).

The Zacks Earnings ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter; the Most Accurate Estimate is a more recent version of the Zacks Consensus EPS estimate. The idea here is that analysts revising their estimates right before an earnings release have the latest information, which could potentially be more accurate than what they and others contributing to the consensus had predicted earlier.

Thus, a positive or negative Earnings ESP reading theoretically indicates the likely deviation of the actual earnings from the consensus estimate. However, the model's predictive power is significant for positive ESP readings only.

A positive Earnings ESP is a strong predictor of an earnings beat, particularly when combined with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). Our research shows that stocks with this combination produce a positive surprise nearly 70% of the time, and a solid Zacks Rank actually increases the predictive power of Earnings ESP.

Please note that a negative Earnings ESP reading is not indicative of an earnings miss. Our research shows that it is difficult to predict an earnings beat with any degree of confidence for stocks with negative Earnings ESP readings and/or Zacks Rank of 4 (Sell) or 5 (Strong Sell).

How Have the Numbers Shaped Up for Avantor?

For Avantor, the Most Accurate Estimate is lower than the Zacks Consensus Estimate, suggesting that analysts have recently become bearish on the company's earnings prospects. This has resulted in an Earnings ESP of -1.93%.

On the other hand, the stock currently carries a Zacks Rank of #4.

So, this combination makes it difficult to conclusively predict that Avantor will beat the consensus EPS estimate.

Does Earnings Surprise History Hold Any Clue?

Analysts often consider to what extent a company has been able to match consensus estimates in the past while calculating their estimates for its future earnings. So, it's worth taking a look at the surprise history for gauging its influence on the upcoming number.

For the last reported quarter, it was expected that Avantor would post earnings of $0.25 per share when it actually produced earnings of $0.26, delivering a surprise of +4%.

Over the last four quarters, the company has beaten consensus EPS estimates four times.

Bottom Line

An earnings beat or miss may not be the sole basis for a stock moving higher or lower. Many stocks end up losing ground despite an earnings beat due to other factors that disappoint investors. Similarly, unforeseen catalysts help a number of stocks gain despite an earnings miss.

That said, betting on stocks that are expected to beat earnings expectations does increase the odds of success. This is why it's worth checking a company's Earnings ESP and Zacks Rank ahead of its quarterly release. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.

Avantor doesn't appear a compelling earnings-beat candidate. However, investors should pay attention to other factors too for betting on this stock or staying away from it ahead of its earnings release.

An Industry Player's Expected Results

Cencora (COR), another stock in the Zacks Medical Services industry, is expected to report earnings per share of $3.50 for the quarter ended December 2024. This estimate points to a year-over-year change of +6.7%. Revenues for the quarter are expected to be $78.12 billion, up 8.1% from the year-ago quarter.

The consensus EPS estimate for Cencora has been revised 1.9% higher over the last 30 days to the current level. However, a higher Most Accurate Estimate has resulted in an Earnings ESP of 0.63%.

When combined with a Zacks Rank of #2 (Buy), this Earnings ESP indicates that Cencora will most likely beat the consensus EPS estimate. The company beat consensus EPS estimates in each of the trailing four quarters.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

Zacks Investment Research

Labcorp Holdings Inc. LH, or Labcorp, is slated to report its fourth-quarter 2024 results on Feb. 6 before the opening bell.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

The renowned laboratory service provider reported adjusted earnings of $3.50 in the last reported quarter, topping the Zacks Consensus Estimate by 0.56%. Labcorp surpassed estimates in each of the trailing four quarters, the average surprise being 2.87%.

LH’s Q4 Estimates

The Zacks Consensus Estimate for Labcorp’s fourth-quarter 2024 revenues is pegged at $3.31 billion. This suggests a 9.3% rise from the year-ago reported figure.

The Zacks Consensus Estimate for its fourth-quarter 2024 EPS is expected to improve by 3% to $3.40.

Estimate Revision Trend Ahead of Labcorp’s Q4 Earnings

Estimates for Labcorp’s Q4 earnings have remained constant at $3.40 in the past 60 days.

Here’s a brief overview of the company’s progress ahead of this announcement.

Factors at Play

Diagnostics Laboratories (Dx)

The segment is likely to have continued its strong momentum in the fourth quarter of 2024, driven by both organic growth and acquisitions. Labcorp may have furthered its strategic priorities by being the ‘partner of choice’ with health systems and regional local laboratories, allowing enhanced services for patients and providers. In the third quarter of 2024, the company acquired select assets and molecular testing location of Lab Works to expand access to comprehensive testing and laboratory services in Birmingham, AL. Additionally, Labcorp closed the acquisition of select operating assets of Ballad Health outreach lab services.

In September 2024, Labcorp acquired BioReference Health's laboratory testing businesses outside of New York and New Jersey, focusing on clinical diagnostics and reproductive and women's health. Further, its collaboration with Naples Comprehensive Healthcare combines important capabilities, experience and technologies to enhance access to laboratory services. All these are expected to positively impact the company’s revenues in the fourth quarter.

Labcorp Price and EPS Surprise

Labcorp price-eps-surprise | Labcorp Quote

Labcorp is also likely to have continued to innovate and launch new tests in important therapeutic areas by harnessing science, technology and innovation. The Invitae acquisition has bolstered its specialty testing capabilities, enabling the company to use genetic data to improve clinical trials and treatment regimens in oncology and select rare diseases.

By integrating its cutting-edge genetic testing solutions, LH is now able to offer more comprehensive patient insights, covering everything from testing and diagnosis to treatment. In the oncology area, Labcorp’s status as the only provider of FDA-authorized kitted solutions for both tissue and liquid-based solid tumor testing is likely to have secured its competitive edge, contributing to the fourth-quarter top line.

We also expect Labcorp to have gained from its growing consumer-initiated test offerings on the Labcorp OnDemand channel. In October 2024, the company announced an exclusive agreement with NowDiagnostics to distribute the first over-the-counter, point-of-care Syphilis blood test granted marketing authorization by the FDA.

The Zacks Consensus Estimate indicates a 9.4% year-over-year increase in the Dx segment’s revenues in the fourth quarter of 2024.

Biopharma Laboratory Services (BLS)

The segment is likely to have benefited from continued strength in the Central Laboratories business, its largest component. Labcorp’s Global Trial Connect suite digital and data solutions are expected to have seen strong customer adoption, supported by the latest enhancements that aimed for improved site workflow efficiency and facilitated deeper insights through continued collaboration across sponsors and sites. Additionally, the Early Development unit may have witnessed improved gross orders and cancellations, boosting the overall revenues in the fourth quarter of 2024.

According to the Zacks Consensus Estimate, revenues in the BLS segment are likely to improve 7.6% year over year.

From an operational standpoint, we expect Labcorp to have met its targeted annual savings of $100-$125 million through its Launchpad initiative. For the fourth quarter of 2024, the Zacks Consensus Estimate implies an 8.2% increase in the adjusted operating income for the Dx business, while the same for the BLS arm indicates a 12.9% improvement year over year.

Earnings Whispers for Labcorp

Per our proven model, stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), along with a positive Earnings ESP, have a higher chance of beating estimates. This is exactly the case here, as you can see below:

Earnings ESP: Labcorp has an Earnings ESP of +0.12%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Other Top MedTech Picks

Here are some other medical stocks worth considering, as these also have the right combination of elements to post an earnings beat this time:

Masimo MASI has an Earnings ESP of +4.05% and a Zacks Rank #1. The company is set to release fourth-quarter 2024 results on Feb. 25.

MASI’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 17.10%. The Zacks Consensus Estimate for the company’s fourth-quarter EPS is expected to increase 14.4% from the year-ago quarter figure.

Merit Medical Systems MMSI has an Earnings ESP of +3.03% and a Zacks Rank #2. The company is slated to release fourth-quarter 2024 results on Feb. 25.

MMSI’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 6.42%. The Zacks Consensus Estimate for Merit Medical’s fourth-quarter EPS is expected to increase 2.47% from the year-ago quarter figure.

Cencora COR has an Earnings ESP of +0.71% and a Zacks Rank #2. The company is set to release first-quarter fiscal 2025 results on Feb. 2.

The company’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 2.45%. The Zacks Consensus Estimate for COR’s first-quarter EPS is expected to increase 7% from the year-ago reported figure.

Zacks Investment Research

The fourth-quarter 2024 earnings cycle is here, with quite a few healthcare companies having reported results. Early reports indicate several key growth drivers at play, including increased patient volumes, utilization, admissions, patient days and rate hikes, as well as growing demand for commercial healthcare plans and technology-enabled offerings. However, rising medical costs due to increased utilization and occupancy have partly offset the positives.

Based on our exclusive research and unique market insight, we present four stocks — Amgen Inc. AMGN, Cencora, Inc. COR, Humana Inc. HUM and Ardent Health Partners, Inc. ARDT — which are set to beat earnings estimates this earnings season.

See the Zacks Earnings Calendar to stay ahead of market-making news.

Q4 Expectations

Before delving into the specifics of what could have impacted fourth-quarter performance, let's examine the sector forecasts.

The healthcare space is a part of the broader Zacks Medical sector (one of the 16 broad Zacks sectors within the Zacks Industry). According to the latest Earnings Trends report dated Jan. 29, the medical sector is projected to experience 12.5% growth in earnings for the fourth quarter, while revenues are anticipated to rise by 8.6%.

Factors at Play for Healthcare Stocks in Q4

The healthcare sector is vast and complex, covering hospitals, medical services, nursing homes, health insurance, medical devices, pharmaceuticals, and outpatient and home healthcare. A growing aging population and rising demand for healthcare products and services continue to drive sales for industry players.

However, investments in technology and innovation have likely pressured profit margins in the short term. Higher salaries and benefits have also increased overall costs for healthcare companies. Additionally, some HMO companies are expected to have seen a decline in Medicaid and Medicare memberships due to redeterminations.

The patient volumes likely rose in the fourth quarter, driven by more visits and surgeries. Increased revenue per admission should have further boosted top-line growth. The continued resumption of elective procedures, particularly among seniors, also contributed to higher patient volumes. However, this surge in utilization may have led to higher medical costs, potentially squeezing profit margins.

To offset rising medical cost trends, some companies likely implemented premium rate hikes, providing some financial relief. Health insurers may have also benefited from new product offerings, technological advancements, premium growth and increased investment income. Meanwhile, the demand for affordable healthcare plans may have driven higher membership in the commercial market.

On the positive side, technological innovations continue to reshape the healthcare industry. AI and automation are improving clinical workflows, enhancing diagnostics and reducing unnecessary costs. These advancements have likely helped hospitals optimize services, shorten patient wait times, enhance the overall patient experienceand lower treatment expenses.

How to Identify Potential Outperformers?

Identifying healthcare stocks with the potential for an earnings beat can be challenging amid the crowded investment landscape. However, our proprietary methodology simplifies this task, offering insights into potential outperformers. With our unique research and deep market analysis, we've identified the healthcare stocks using the Zacks Stock Screener.

These stocks have the ideal combination of two ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — to surpass expectations. Our research shows that for stocks with this combination, the chances of an earnings beat are as high as 70%. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Potential Outperformers

One might start with Cencora, which is one of the major pharmaceutical services companies. Headquartered in Conshohocken, PA, the company’s December-quarter earnings are expected to have benefited from increased sales of GLP-1 drugs and specialty products and higher operating income from the global specialty logistics business. Higher days payable and growth in the U.S. Healthcare Solutions business are likely to have positioned the company for an earnings beat this time around.

The Zacks Consensus Estimate for Cencora’s fiscal first-quarter earnings is pegged at $3.50 per share, which remained stable over the past week. It beat earnings estimates in all the past four quarters, with an average of 7%. COR has an Earnings ESP of +0.63% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cencora, Inc. Price and EPS Surprise

Cencora, Inc. price-eps-surprise | Cencora, Inc. Quote

You may also watch Thousand Oaks, CA-based Amgen, one of the biggest biotech companies in the world, which has an Earnings ESP of +3.15% and a Zacks Rank #3.

Its fourth-quarter earnings are likely to have gained from growing product sales in Prolia, Repatha, Kyprolis, Xgeva, Vectibix and others. Growth in rare disease drugs, mostly Horizon’s products, will likely boost its results. The Zacks Consensus Estimate for Amgen’s fourth-quarter earnings indicates a 6.4% improvement from a year ago. The estimate remained stable over the past week. It beat earnings estimates in each of the past four quarters, the average surprise being 4.1%.

Amgen Inc. Price and EPS Surprise

Amgen Inc. price-eps-surprise | Amgen Inc. Quote

Louisville, KY-based Humana also deserves mention. It is a healthcare plan provider witnessing strong premium growth, improving cost management and growing memberships. It has an Earnings ESP of +0.23% and a Zacks Rank #3. The consensus mark for fourth-quarter revenues is pegged at $28.82 billion.

An expanding value-based home care model is expected to benefit HUM’s CenterWell unit. The Zacks Consensus Estimate for Humana’s fourth-quarter earnings remained stable over the past week with no revisions in estimates. It beat earnings estimates thrice in the past four quarters and missed once, the average surprise being 0.2%.

Humana Inc. Price and EPS Surprise

Humana Inc. price-eps-surprise | Humana Inc. Quote

Finally, we have Brentwood, TN-based Ardent Health, which provides healthcare services through a network of hospitals and clinics. Rising adjusted admissions, higher revenue per admission and patient days are likely to have positioned ARDT for better-than-expected fourth-quarter earnings.

The Zacks Consensus Estimate for Ardent Health’s bottom line for the to-be-reported is pegged at 45 cents per share, which remained stable over the past week. The consensus mark for revenues is pegged at $1.49 billion. ARDT has an Earnings ESP of +0.74% and a Zacks Rank #3. It beat earnings estimates once and missed one time in the past two quarters.

Ardent Health Partners, Inc. Price and EPS Surprise

Ardent Health Partners, Inc. price-eps-surprise | Ardent Health Partners, Inc. Quote

Zacks Investment Research