The second-quarter earnings season is making progress with 34.2% members of the elite S&P 500 Index having reporting solid quarterly numbers so far.
Per the latest Earnings Outlook, the performance of 171 index members (accounting for 44.1% of index’s total market capitalization) that have already reported their financial numbers this quarter, indicate that total earnings have increased 8.8% on 3.4% higher revenues.
The beat ratio is impressive with 78.9% companies surpassing the bottom-line expectations and 70.8% outperforming on the top-line front.
Let us focus on Healthcare, which falls within the Medical ambit, which is one of the seven sectors in the S&P 500 group. As of Jul 26, 29.1% of the total Medical sector reported second-quarter results. The beat ratio is strong with 87.5% companies surpassing bottom-line expectations and 56.3% beating top-line estimates.
The sector has been in the limelight since the change of power at the White House. President Donald Trump, who is keen to repeal and replace the Health Care Reform Act more popularly called Obamacare, has injected a fresh dose of uncertainty in the industry.
Earnings for the players in the industry will be driven by their continued efforts to provide high-quality, cost-effective care and the ability to adjust to changes in the regulatory and operating environments.
Mergers and acquisitions in the space are at all-time highs as companies try to grow inorganically in a tough market. We thus expect earnings to benefit from acquisitions. Increase in a number of patient admissions from fast growing Medicare and Medicare Advantage programs will be one of the revenue drivers.
On the flipside, increasing expense to manage operations, higher cost to comply with changing regulations, increased investment in technology, acquisition integration costs etc. are expected to weigh on earnings.
Let’s take a peek at these two healthcare companies that are gearing up to report their second-quarter results on Jul 31.
HealthSouth Corporation (HLS - Free Report) provides outpatient surgery and rehabilitative healthcare services, through its national network of inpatient and outpatient healthcare facilities.
The company has an Earnings ESP of +1.47% as the Most Accurate estimate of 69 cents is a penny more than the Zacks Consensus Estimate. The company’s Zacks Rank #3 (Hold) coupled with a positive ESP is a meaningful indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Last quarter, HealthSouth, beat the Zacks Consensus Estimate by 7.69%. With respect to the surprise trend, the company surpassed expectations in each of the last four quarters, as shown in the chart below:
HealthSouth Corporation Price and EPS Surprise
Medpace Holdings, Inc. (MEDP - Free Report) is a, global, full-service clinical contract research organization which provides Phase I-IV clinical development services to the biotechnology, pharmaceutical and medical device industries.
The company has an Earnings ESP of 0.00% as the Most Accurate estimate of 30 cents is in line with the Zacks Consensus Estimate. The stock carries a Zacks Rank #4 (Sell). We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Last quarter, Medpace, missed the Zacks Consensus Estimate by 8.11%. The company posted positive surprise in only one of the last four quarters, as shown in the chat below:
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early. SeeZacks' 3 Best Stocks to Play This Trend >>