These 2 Medical Stocks Could Beat Earnings: Why They Should Be on Your Radar

Zacks Investment Research highlights its Earnings ESP (Expected Surprise Prediction) methodology as a robust tool for identifying stocks likely to beat earnings estimates, citing its historical efficacy. The ESP, which compares the Most Accurate Estimate to the Zacks Consensus Estimate and integrates the Zacks Rank, has demonstrated a 70% success rate in predicting positive earnings surprises when combined with a Zacks Rank #3 (Hold) or better, yielding average annual returns of 28.3% over a 10-year backtest. The article specifically references Johnson & Johnson (JNJ), with a +0.59% ESP and Zacks Rank #2 (Buy), and Heron Therapeutics (HRTX), with a +100% ESP and Zacks Rank #3 (Hold), as medical stocks poised for potential earnings beats.

Analysis

Quantitative analysis from Zacks Investment Research flags two medical sector stocks, Johnson & Johnson (JNJ) and Heron Therapeutics (HRTX), as having a high probability of delivering positive earnings surprises in their upcoming quarterly reports. This assessment is based on the proprietary Zacks Earnings ESP (Expected Surprise Prediction) model, which historically has identified stocks that produced a positive surprise 70% of the time when combined with a Zacks Rank of #3 (Hold) or better, a strategy that has yielded a 28.3% average annual return according to a 10-year backtest. Johnson & Johnson, holding a Zacks Rank of #2 (Buy), shows a +0.59% ESP based on a Most Accurate Estimate of $2.66 per share versus a consensus of $2.64 ahead of its July 16 report. Similarly, Heron Therapeutics, with a Zacks Rank of #3 (Hold), exhibits a more pronounced +100% ESP, as its Most Accurate Estimate of $0.00 per share significantly outpaces the consensus estimate of a $0.01 loss for its August 5 report. The positive ESP figures for both companies are driven by recent upward revisions from analysts, suggesting informed sentiment is trending more favorably than the broader consensus.

Key Decisions for Investors

• Investors focused on earnings-driven alpha should consider the positive ESP signals for Johnson & Johnson and Heron Therapeutics as potential indicators for a pre-earnings bullish position.
• For Johnson & Johnson, the combination of a #2 (Buy) rank and a positive ESP suggests a strong case for outperformance, making it a compelling target for investors seeking exposure to a large-cap medical company with positive near-term catalysts.
• Heron Therapeutics presents a higher-risk, higher-potential-surprise scenario; its remarkable +100% ESP suggests a significant beat is likely, but its #3 (Hold) rank implies that broader market-perform expectations should temper position sizing.
• Monitor analyst estimate revisions for both JNJ and HRTX closely in the days leading up to their respective earnings dates, as any change to the Most Accurate Estimate could materially alter the ESP and the associated trading thesis.