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Healthcare Stock Q1 Earnings Due on Apr 25: ANTM, UHS, PRAH

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The first-quarter earnings season is unwinding fast with 87 members of the elite S&P 500 index already having reported financial numbers. Per the latest Earnings Preview, performances of these index participants indicate a 25% increase in total earnings on 10.7% higher revenues. The beat ratio is impressive with 82.8% companies surpassing bottom-line expectations and 67.8% outperforming on the top-line front.

The Medical sector (one of the 16 Zacks sectors) is expected to deliver 9.4% earnings growth on 6.8% higher revenues in the first quarter. This is, however, shy of the projected 18.3% and 7.7% revenue and earnings growth, respectively, for the S&P 500 index.

Healthcare is part of the broader medical sector, which includes diversified industries like health maintenance organizations (HMOs) popularly known as health insurers, clinical, laboratories and diagnostics research, medical equipment, hospitals & nursing homes, telehealth services and more. The sector is so diverse that a single factor influencing a sector positively can be a negative for the other sector. For example flu, which causes an increase in medical services utilization, is an earnings driver for the hospital sector while at the same time a negative factor for insurers it causes a spike in claim costs.  

To put it into perspective, the January-to-March 2018 period was an unexpectedly brutal flu season, which led to a spike in medical cost for insurers. But because of UnitedHealth’s superior medical cost management, the flu season did not have any adverse impact on the company’s results. UnitedHealth is considered to be a bellwether for the other companies and its results provide a broad picture of the industry that despite increased flu, the first quarter will be profitable.

The health insurers are likely to have witnessed an increase in premium and enrollment from the government businesses – Medicare, Medicare Advantage and Medicaid. A surge in the baby boomer population has led to higher demand for these policies. Earnings should also see an upside from ancilliary and health service businesses, which the health insurers have been investing in for the past many years to diversify the revenue base. These businesses which focus on data management, management of clinical records, analytics, clinical care, pharmacy care and more have been a nice contributor to the group’s earnings in recent years and the trend is expected to continue.

However, this severe flu season should be a shot in the arm for care providers and other companies all along the pharmaceutical supply chain, as it would lead to higher revenues from increasing hospital visits and drug sales. Companies in the hospital sector should see increased patient revenues and admissions as more patients seek medical help, which in turn should drive their top-line growth.

Nevertheless, the hospital companies should continue to feel the heat, from walk-in clinics and other outpatient treatment options that have been eating into their admissions volumes for past many quarters.

Let’s find out where the following healthcare stocks insurers stand ahead of their first-quarter releases on Apr 25.

Anthem Inc. revenues have been consistently growing over the past several quarters, driven by membership growth. The company’s fully insured and self-funded memberships have boosted total enrollment. The Zacks Consensus Estimate for revenues is pegged at $22.5 billion, reflecting a year-over-year rise of nearly 1%.

The company’s Government business has been performing well over a considerable period of time, supported by increasing Medicaid and Medicare enrollment. The consensus mark for total operating revenues of Government business is pegged at $12.8 billion, up 7% year over year.

However, higher medical costs for individual ACA-compliant products and more claims leading to an escalated benefit expense ratio from its Medicaid business are expected to drain the bottom line.

The Zacks Consensus Estimate of $4.85 for the yet-to-be-reported quarter reflects 3.6% year-over-year growth. Anthem carries a Zacks Rank #2 (Buy), which increases the predictive power of ESP. However, its Earnings ESP of -1.83%, makes surprise prediction unlikely as the company needs a positive ESP to be confident about an earnings surprise. (Read more: Anthem Q1 Earnings: What's in Store for the Stock?)

Anthem, Inc. Price and EPS Surprise

Universal Health Services, Inc.’s (UHS - Free Report) Acute Care and Behavioral Health segments have been registering strong performance over the past several quarters, on the back of a continuous rise in admissions, licensed beds and patient days, leading to higher revenues in turn. The to-be-reported quarter is expected to have witnessed the same uptrend.

The Zacks Consensus Estimate for total revenues is pegged at $2.7 billion, reflecting year-over-year growth of 5%. Our consensus estimate for the metric from Acute Care and Behavioral Health segments stands at $1.5 billion and $1.3 billion, respectively, up 6.4% and 3.5% each, year over year.

The Zacks Consensus Estimate of $2.59 per share for the yet-to-be-reported quarter reflects 23.3% year-over-year e9arnings growth. United Health Services carries a bullish Zacks Rank #2, which increases the predictive power of ESP. Moreover, its Earnings ESP of +0.32% makes us confident of an earnings surprise in the to-be reported quarter. (Read more: Can Universal Health Q1 Earnings Beat on Admissions?).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

PRA Health Sciences, Inc. operates as a global contract research organization providing outsourced clinical development services to the biotechnology and pharmaceutical industries. It offers therapeutic services in the areas of cardio-metabolic, biosimilars, infectious diseases, immunology, neurology and psychiatry, oncology and hematology, rare diseases, and respiratory needs.

The Zacks Consensus Estimate of 84 cents per share for the yet-to-be-reported quarter reflects 35.5% year-over-year growth. PRA Health Sciences carries a Zacks Rank #4 (Sell) and an Earnings ESP of -0.20%. Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

PRA Health Sciences, Inc. Price and EPS Surprise

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