Each week I attempt to point out five newsworthy stories in the health-care sector that you as investors should keep your eyes on in the week ahead. With the week ahead being shortened by one of my favorite holidays, Thanksgiving, news events across all sectors, including health-care, are slim pickings at best. There are no FDA panel meetings scheduled, no major health-care conferences, and just five companies in total reporting earnings in the sector. Of those five, there's just one report worth keeping your eye on – but it's a mammoth one!
Medical-device giant Medtronic (NYSE:MDT) is slated to report its second-quarter earnings results on Tuesday, with analysts expecting the company to earn $0.88 per share on a 2% decline in revenue to $4.05 billion from the year-ago quarter.
We've already been given some decent clues of what to expect from Medtronic's peers, although the results have been generally mixed because of challenging global sales environments. In the positive column, St. Jude Medical (NYSE:STJ) surpassed Wall Street's third-quarter expectations by $0.02 as restructuring charges weighed on its profits. Johnson & Johnson (NYSE:JNJ), which recently completed its purchase of Synthes to add to its growing portfolio of medical devices, reported a quarterly profit of $1.25, $0.04 better than expectations, despite the impact of negative currency translation.
Conversely, Baxter International (NYSE:BAX) reduced its top-line earnings forecast last month and slightly missed sales estimates, which, too, were hurt by foreign currency translation. Luckily for Baxter, its management thinks its focus on unmet medical needs will shield it from macroeconomic weakness. Boston Scientific (NYSE:BSX) wasn't as lucky, reporting a one-time loss-filled third-quarter in which sales fell more than 7%.
The lesson from these reports is that European spending is a mess. More exposure to Europe has meant more possibility of a revenue shortfall. Therefore, it wouldn't be a shock to see Medtronic come in a tad light on second-quarter revenue.
It's also worth keeping an eye on whether Medtronic plans to expand or cut back its operations as we head into 2013. If you recall, the passing of the Affordable Care Act is going to begin levying a 2.3% medical-device excise tax on companies like Medtronic beginning in 2013 to help pay for the expansion of the Medicaid program. We've already seen device companies laying off workers, either directly or indirectly related to the ACA, and/or moving their operations overseas. Boston Scientific has been actively investing in China, and St. Jude recently outlined plans to increase its round of layoffs by an additional 500 people. In short, device companies are looking to continue growing, but are reducing their costs and operations within the United States. It should be interesting to see what the largest medical-device maker has to say regarding the implementation of the ACA.
Does Medtronic have what it takes?
We'll find out on Tuesday if Medtronic has what it takes to be considered a long-term champion. In the meantime, I encourage you to check out our latest special report on three companies that do have all of the tools necessary to help you retire rich. Click here to learn more and find out the identity of these three handpicked stocks, for free!
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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