The fourth-quarter 2023 earnings season for healthcare stocks is in full swing now. With quite a few companies having already reported results, we have identified some of the major growth drivers witnessed in the quarter.

Higher patient volumes, admissions, patient days, telehealth services and demand for more affordable plans have significantly benefited the healthcare stocks, which is a part of the broader Zacks Medical sector (one of the 16 broad Zacks sectors within the Zacks Industry). The positives were partially offset by rising expenses related to higher utilization. Also, investments poured into technological innovations are likely to hurt the companies’ margins in the short run.

Leveraging our exclusive research and distinctive market insight, we've pinpointed three stocks in the healthcare space using the Zacks Stock Screener that have the potential to surpass the Zacks Consensus Estimate for earnings for the fourth quarter. These include Universal Health Services, Inc. (UHS Quick QuoteUHS - Free Report) , Alignment Healthcare, Inc. (ALHC Quick QuoteALHC - Free Report) and Agiliti, Inc. (AGTI Quick QuoteAGTI - Free Report) .

Before we get into the details of factors that may have influenced fourth-quarter performance, let’s take a look at the sector projections. Per the latest Earnings Preview, the medical sector’s fourth-quarter 2023 earnings are estimated to decline 18.2%, while revenues are expected to increase 6.3%.

Identifying Potential Outperformers

With multiple healthcare firms crowding the investment space, it is not an easy task for investors to pinpoint stocks that have the potential to deliver an earnings beat. While it is impossible to be sure about such outperformers, our proprietary methodology makes it fairly simple.

These stocks have the ideal combination of two ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — to surpass expectations. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Factors Influencing Q4 Results

The healthcare space is one of the biggest and most complex markets in the U.S. It includes hospitals, medical services, nursing homes, health insurance, medical devices, pharmaceuticals and several other industries. The expanding aging population and the increasing demand for health products and services are constant sales boosters for healthcare companies.

Higher patient visit volumes in the fourth quarter are likely to have boosted utilization for healthcare stocks. With more and more senior citizens resuming elective procedures that were paused due to the pandemic, it is expected to have aided volumes. However, the increasing utilization is expected to have driven medical costs and other related expenses higher in the quarter, eroding profit margins.

The ongoing improvement in the labor shortage situation throughout the fourth quarter likely offered some relief to healthcare players. Additionally, advancements in technology and innovations are expected to have enabled these players to optimize hospital services, reduce unnecessary expenses and enhance the overall patient experience.

The integration of AI and automation is expected to have improved clinical workflow management and medical diagnosis within hospitals and other healthcare facilities. As a result, patients' waiting times may have been reduced, and treatment costs may have been lowered.

For health insurers, product developments, investments in technological adaptations, premium growth and increased investment income are likely to have aided results in the fourth quarter. With demand for affordable health products rising, some companies are expected to have witnessed higher memberships in the fourth quarter.

Potential Q4 Outperformers

Below, we have listed three healthcare stocks that have the right mix of elements to pull off a beat this earnings season.

Headquartered in King of Prussia, PA, Universal Health Services operates acute care hospitals, behavioral health centers, surgical hospitals and radiation oncology centers and provides commercial health insurance services. Its fourth-quarter earnings are expected to have benefited from expanding patient base. Improved same-facility-adjusted patient days are likely to have positioned the company for an earnings beat this time around.

The Zacks Consensus Estimate for Universal Health’s fourth-quarter earnings is pegged at $3.02 per share, which increased by 2 cents in the past month. It beat earnings estimates in all the past four quarters, with an average of 5.5%. UHS has an Earnings ESP of +2.76% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Headquartered in Orange, CA, Alignment Healthcare is a Medicare plan provider. Its fourth-quarter earnings are likely to have gained from growing memberships and an improving medical benefit ratio. Higher earned premiums will likely boost its top line in the fourth quarter.

The Zacks Consensus Estimate for Alignment Healthcare’s fourth-quarter earnings indicates a 29% improvement from a year ago. The estimate remained stable over the past month. The consensus mark for revenues indicates 21.3% year-over-year growth. The company has an Earnings ESP of +4.55% and a Zacks Rank #3.

Eden Prairie, MN-based Agiliti offers healthcare technology management and service solutions to its clients in the healthcare industry. New customer growth in Clinical Engineering and improvement in Onsite Managed Services are likely to have positioned CANO for better-than-expected fourth-quarter earnings.

The Zacks Consensus Estimate for Agiliti’s fourth-quarter bottom line is pegged at 12 cents per share, which remained stable over the past week. AGTI has an Earnings ESP of +1.70% and a Zacks Rank #3. The Zacks Consensus Estimate for revenues is pegged at $292 million, which suggests 3.7% year-over-year growth.