CVS Health Corporation (CVS Quick QuoteCVS - Free Report) is scheduled to report its second-quarter 2016 results before the opening bell on Aug 2.

Last quarter, CVS Health posted earnings ahead of the Zacks Consensus Estimate by 1.72%. CVS Health has beat earnings in two of the prior four quarters, with a positive average surprise of 0.65%.  Let’s see how things are shaping up prior to this announcement.

Factors at Play

CVS Health is optimistic about sustaining its solid year-over-year earnings trend in the rest of 2016 driven by the gains to be realized from the Pharmacy Services segment. However, according to the company, there are several timing factors that will affect the cadence of profit delivery throughout this year.

These factors include the introduction and timing of break-open in generics, the timing of profitability in Medicare Part D business, the timing of the benefits from the company’s strategies to drive growth in the front end, and the timing of share repurchases along with certain tax benefits among others.

Consequently, even after delivering a better-than-expected first quarter, these timing factors will lead to a back-half weighted profit growth in 2016. The second quarter as a result, may remain dreary in terms of profit.

On the optimistic side, CVS Health had already completed the 2016 selling season with the retention rate of 97.3%. Turning to 2017 selling season, despite tough pricing competition, CVS health is currently benefiting well displaying high levels of service and execution, competitive pricing along with unique integrated model that allows the company to provide diverse products and services that generate savings, better health outcomes and convenience. The company last declared that it had completed over a third of its client renewals already.

We take note of the recently completed Omnicare and Target Pharmacy acquisitions that are currently undergoing the integration process. According to CVS, both the acquisitions are strategic fits and it anticipates gaining from the multiple opportunities for driving enterprise value from Omnicare and Target in both the near and long term.

CVS Health had earlier provided its second-quarter 2016 adjusted EPS projection. The company forecasts adjusted EPS in the range of $1.28−$1.31. The current Zacks Consensus Estimate of $1.30 falls near to the upper end of the guided range.

Earnings Whispers

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

Zacks ESP: CVS Health’s Earnings ESP is 0.77% since the Most Accurate estimate falls at $1.31 while the Zacks Consensus Estimate stands lower at $1.30.

Zacks Rank: CVS Health has a Zacks Rank #4 (Sell).

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

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

Bristol-Myers Squibb Co. (BMY Quick QuoteBMY - Free Report) , with an Earnings ESP of +1.49% and a Zacks Rank #1.

Hologic Inc. (HOLX Quick QuoteHOLX - Free Report) , with an Earnings ESP of +2.13% and a Zacks Rank #2.

Zimmer Biomet Holdings, Inc. (ZBH Quick QuoteZBH - Free Report) , with an Earnings ESP of +1.02% and a Zacks Rank #2.

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