Medical Stocks Reporting Q4 Earnings on Feb 6: CNC, WCG, HQY

Fourth-quarter earnings have already crossed the halfway mark. As of Feb 2, 251 S&P 500 companies reported results with strong earnings numbers and 92 of them are slated to release this week.

Per the latest Earnings Preview, total earnings for the 251 S&P 500 members that have reported results are up 16% year over year on 10.5% higher revenues, with 80.5% beating EPS estimates and 78.1% topping revenue estimates. About 64.9% of the companies have surpassed both EPS and revenue estimates.

Total fourth-quarter earnings are expected to be up 13% from the year-ago quarter on 7.7% higher revenues.

Sector Trends

The medical sector has been in the limelight ever since Donald Trump became the President. Trump’s intention to repeal and replace the Affordable Care Act (ACA), also known as Obamacare, has resulted in an uncertain future for the whole sector. As a result, the medical stocks continue to be in focus.

The U.S. healthcare industry substantially benefits from the strong membership base supported by medicaid expansion under the ACA. Aggressive inorganic strategies have helped the players achieve fast-paced growth. In addition, new product launches, expansion into ancillary businesses, business diversification, cost control efforts, increased operating efficiencies and a strong capital position are expected to add to the top line and bottom-line growth for most of the players.

However, medical stocks face threats like the rising level of bad debt, demand for increasing investments in technological innovation, integration cost related to acquisitions and high interest expenses on debt-funded acquisitions. In addition, higher medical costs, public exchange woes, stiff competition, stringent regulations and compliance costs were also a drag. These are likely to put pressure on the bottom line.

Stocks to Consider

Centene Corporation CNC has been witnessing consistent growth in its membership over the past few quarters that has significantly boosted the top line.  This uptrend is expected to continue in the fourth quarter as well. The Zacks Consensus Estimate for total membership is currently pegged at 12.2 billion, reflecting 7% year-over-year growth.

Centene’s membership has been continuously increasing on the back of its solid Medicaid expansion. The company’s intention to continue with its public exchange business while other health insurers are exiting it, has boosted its Medicaid membership. The trend is expected to continue in the fourth quarter. The Zacks Consensus Estimate for Medicaid membership stands at 5.9 billion, reflecting year-over-year growth of 4%.

Our proven model shows that Centene has the right combination of two key ingredients to beat estimates this quarter.

Its Earnings ESP is +1.24%. The positive ESP is a leading indicator of a likely earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Moreover, Centene sports a Zacks Rank #1 (Strong Buy). Note that stocks with a Zacks Rank #1, 2 (Buy) or 3 (Hold) have a significantly higher chance of beating on earnings. The combination a favorable Zacks Rank and positive Earnings ESP makes us reasonably confident of an earnings beat. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. 

(Read more: Why Centene Corporation Might Surprise This Earnings Season)

Centene Corporation Price and EPS Surprise

Centene Corporation Price and EPS Surprise | Centene Corporation Quote

Wellcare Health Plans, Inc WCG is expected to have grown its membership in the fourth quarter on the back of Medicaid expansion. Renewal of existing Medicaid contracts and issuance of new deals are likely to have boosted Medicaid membership.

Moreover, the Medicare segment is also expected to have witnessed solid premium revenue growth continuing the previous trend on the back of inorganic growth.

Medicare Prescription Drug Plan (PDP) is likely to have performed well in the fourth quarter, adding to the revenue base.

Our proven model does not conclusively show that Wellcare Health is likely to beat on earnings this quarter. This is because despite carrying a favorable Zacks Rank #3, an Earnings ESP of -2.55% makes the positive earnings surprise prediction inconclusive.

WellCare Health Plans, Inc. Price and EPS Surprise

WellCare Health Plans, Inc. Price and EPS Surprise | WellCare Health Plans, Inc. Quote

HealthEquity Inc. HQY is likely to witness solid revenue growth in the fourth quarter backed by rising Health Savings Accounts.

Moreover, the company’s cost-saving initiatives are likely to have lowered the pressure on the margins.

Our proven model does not conclusively show that the company is likely to beat on earnings this quarter. This is because despite carrying a favorable Zacks Rank #3, an Earnings ESP of -4.27% makes the positive earnings surprise prediction inconclusive.

HealthEquity, Inc. Price and EPS Surprise

HealthEquity, Inc. Price and EPS Surprise | HealthEquity, Inc. Quote

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
WellCare Health Plans, Inc. (WCG) : Free Stock Analysis Report
 
Centene Corporation (CNC) : Free Stock Analysis Report
 
HealthEquity, Inc. (HQY) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research