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Can Health Net (HNT) Surprise This Earnings Season?

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Health Net, Inc. is set to report fourth-quarter 2013 results on Feb 11. Last quarter, it posted a 40.68% positive surprise. Let’s see how things are shaping up for this announcement.

Factors this Past Quarter

In order to enhance its membership base, Health Net has been spreading awareness about diabetes among Americans aged 65 and above.  Health Net also collaborated with the Centers for Medicare & Medicaid Services (CMS) and the California Department of Health Care Services (DHCS) to build awareness and improve health conditions of the dual-eligibles in Los Angeles and San Diego. These initiatives are expected to help Health Net achieve a 2–3% increase in Medicare Advantage enrollment and a 4–6% rise in Medicaid enrollment in 2013. Moreover, the company’s foray into Arizona Medicaid in the last quarter is expected to enhance customer base and hence revenue generation.

However, declining revenues from Health Net’s government contracts segment over the past few years is a concern, as the company generates a substantial part of its revenues from this segment. Adding to the woes, the ongoing uncertainties in the global economy and challenging market conditions like high levels of unemployment, diminished consumer confidence and volatility in both the U.S. and international capital and credit markets might weigh on the company’s profitability in the fourth quarter.

Earnings Whispers?

Our proven model does not conclusively show that Health Net is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zero Zacks ESP:  That is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 28 cents. That is a difference of 0.00%.

Zacks Rank #3 (Hold): Health Net’s Zacks Rank #3 increases the predictive power of ESP but when combined with a zero ESP makes surprise prediction difficult. We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is witnessing negative or zero estimate revisions momentum.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:  

HEALTHSOUTH Corp. , with Earnings ESP of +4.55% and Zacks Rank #3.

PharMerica Corporation , with Earnings ESP of +9.09% and Zacks Rank #3.

Tenet Healthcare Corp. (THC - Free Report) , with Earnings ESP of +17.65% and Zacks Rank #3.

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