Q1'17 Earnings: Strong Growth & Positive Surprises
According to Zack’s Investment Research, 358 members of the S&P 500 have reported their quarterly results as of Wednesday, May 3rd. Total earnings from these companies have grown 12.9% in Q1'17 compared to 5.3% in Q4'16. Revenues are also up 7.9% compared to 4.6% in the previous quarter. Notably, 65.9% of these companies have also beat their revenue estimates which is significantly above their rolling 12-quarter average of 55.5%. However, it appears the market has not been all that surprised.
While the S&P 500 is up 6.8% year to date, the 358 companies which have reported positive earnings overall have seen a negative -0.2% stock price impact (on average) immediately following their Q1'17 release. This implies that the market had already priced in these impressive growth figures.
However, one sector that has surprised the market has been medical stocks.
4 Undervalued Medical Stocks Reporting Next Week
S&P 500 companies in the medical sector have reported earnings and revenue growth of 6.3% while 69.2% of these companies have beat their revenue estimates. These medical stocks have seen a positive 1.6% price impact immediately following earnings which compares favorably to the -0.2% impact for the entire 358 company group.
Using this stock screen, we found four stocks classified in the medical sector that are fundamentally undervalued and could also see their stock price increase following earnings next week. The four stocks trading well below their finbox.io fair value estimate are NxStage Medical (NasdaqGS:NXTM), Charles River Laboratories (NYSE:CRL), Jazz Pharmaceuticals (NasdaqGS:JAZZ) and Steris (NYSE:STE).
NxStage is a medical technology company that sells products and services for patients suffering from kidney failure. The company is expected to report earnings on Tuesday before the market opens and appears 25% undervalued when applying Wall Street estimates to seven separate cash flow analyses.
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View all 7 valuation models that derive NXTM's fair value estimate.
Charles River Laboratories is an early-stage contract research company that provides drug discovery and development services worldwide. The company is expected to report earnings on Wednesday before the market opens. Finbox.io's $113.74 intrinsic value estimate implies over 25% upside.
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View all 8 valuation models that derive CRL's fair value estimate.
Jazz Pharmaceuticals is a biopharmaceutical company that develops products for various medical needs worldwide and is expected to report earnings on Tuesday after the market closes. Seven separate valuation models imply 20% upside while Wall Street's $179.40 average price target implies nearly 15% upside.
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View all 7 valuation models that derive JAZZ's fair value estimate.
Steris develops infection prevention, contamination control, surgical and gastrointestinal support products worldwide. Earnings are expected to be reported on Tuesday before the market opens. While shares currently trade near their 52-week high, the stock still appears approximately 10% undervalued based on ten separate valuation analyses.
<img width=100% src='http://res.cloudinary.com/finbox/image/upload/v1493994532/4_-_STE_FV_dpzi3k.jpg' alt= ‘STE finbox.io fair value estimate’>
View all 10 valuation models that derive STE's fair value estimate.
These four stocks in the medical sector all have strong fundamentals and could easily trade higher following a positive earnings announcement.
Value investors may want to take a closer look at these names prior to them reporting next week.
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photo credit: IndiaFilings
Note this is not a buy or sell recommendation on any company mentioned.