The Q3 earnings season has begun and as per the latest Earnings Trends report, post a sluggish Q2, there will be modest improvements in the overall earnings picture this quarter. While Q3 is expected to represent the sixth quarter in a row of earnings declines for the S&P 500 index, the scenario is improving. As of Oct 14, 27 S&P 500 members (5.1% of the total market cap) have reported their quarterly numbers, with the majority yet to report.
So far, we have observed that the global economic issues are still in the process to factor into the equity market performance as a whole. The ongoing week with quite a few earnings announcements lined up, will prove crucial in deciding whether this Q3 will really mark somewhat of an improvement from the preceding three quarters.
What's in Store for the Healthcare Space?
Just a month ahead of the Presidential election and following the heated second round of debate between the Republican candidate Donald Trump and Democrat Hillary Clinton a week ago, the entire nation’s eyes are currently set on how one of the most contentious sectors of the U.S. economy − healthcare − has performed in Q3, and what will its future be with or without Obamacare. The face-off points to the fact that no matter who wins the presidential race, Obamacare will be altered. Only time will tell, whether there will be a full repeal or just a reform of the ACA.
Nonetheless, there is some definite good news for investors keen on the Healthcare or medical space. Per the report, Medical is one of the 8 broader sectors among the 16 Zacks sectors which are expected to report earnings growth. The sector is expected to deliver 2.7% earnings growth on the back of 7.4% higher revenues for the third quarter.
We note that Healthcare holds a lot of promise at the moment thanks to the temporary two-year suspension of the controversial and dreadful 2.3% medical device excise tax which took a toll on the entire medical device industry since its enactment in 2013. In addition, the recent change in consumer demand and market dynamics led to a dramatic transformation in the entire healthcare system. This is evident from the growing prevalence of minimally invasive surgeries, rising demand for liquid biopsy tests, use of IT for ensuring quick and improved patient care, and the shift of the payment system to a value-based model among others.
Let’s take a look at two major healthcare stocks slated to release their quarterly reports on Oct 20:
Quest Diagnostics Inc. (DGX - Analyst Report) : This leading commercial laboratory services company is scheduled to report its third-quarter 2016 results before the opening bell on Oct 20. With the last reported results, Quest Diagnostics saw the seventh consecutive quarter of organic revenue growth at an increasing rate. The upside was backed by the successful execution of the company’s strategy to grow its esoteric testing business and drive profitable growth. This trend is expected to continue in the to-be-reported quarter as well.
We also take note of several recent developments at the company, which will significantly contribute to its top line in the third quarter. In addition, a number of new relationships with hospitals and integrated delivery networks were the other growth drivers. Particularly, we look forward to the company's alliance with HealthONE System of HCA Healthcare (HCA - Snapshot Report) to improve the quality and value of diagnostic services. On the flip side, reimbursement related issue is expected to act as a dampener.
Quest Diagnostics currently has a Zacks Rank #3 (Hold) and an Earnings ESP of 0.00%. That is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.35. Though a Zacks Rank #3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult. (Read More: Quest Diagnostics Q3 Earnings: A Surprise in Store?)
ICON Public Limited Company (ICLR - Snapshot Report) : This is a renowned contract research organization that provides outsourced development services to the pharmaceutical, biotechnology, and medical device industries in Ireland, rest of Europe, the U.S., and internationally. The company is slated to report third-quarter 2016 earnings on Oct 20.
It has an Earnings ESP of +1.7% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. We believe Icon’s performance will benefit from its continued investments in ICONIK, ADDPLAN and Firecrest platforms. Pricing pressure, austerity measures and health care reforms may pose hurdles. (Read More: Can Icon Sustain its Surprise Streak in Q3 Earnings?)
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