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We expect health benefits company, WellPoint Inc. to beat expectations when it reports fourth-quarter 2013 results on Jan 29, 2014.

Why a Likely Positive Surprise?

Our proven model shows that WellPoint is likely to beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP: Expected Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at 2.33%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.

Zacks Rank #2 (Buy): Note that stocks with Zacks Ranks #1, 2 and 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.  

The combination of WellPoint’s Zacks Rank #2 (Buy) and 2.33% ESP make us very confident of a positive earnings beat.

What is Driving the Better Than Expected Earnings?

Possession of an independent license for marketing products under the Blue Cross and Blue Shield Association (BCBSA), the Amerigroup acquisition and success in the Administrative Services Only (ASO) marketplace are expected to lead to a positive earnings surprise.

The positive trend is reflected in the trailing four-quarter average surprise of 18.1%, which was greatly supported by the 14.8% surprise in the last-reported quarter. This was possible because WellPoint did impressively well in enhancing memberships and incurred lower-than-expected medical costs. Impressive performance by the Commercial and Government segments also favored the results.

Other Stocks to Consider

WellPoint is not the only firm looking up this earnings season. Other stocks in the same sector that have both a positive earnings ESP and a favorable Zacks Rank are:

Aetna Inc. (AET - Analyst Report), with Earnings ESP of +2.90% and Zacks Rank #3 (Hold).

HEALTHSOUTH Corp. (HLS - Snapshot Report), with Earnings ESP of +4.55% and Zacks Rank #3.

PharMerica Corporation (PMC - Snapshot Report), with Earnings ESP of +9.09% and Zacks Rank #3.
 

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