The first-quarter earnings season has crossed the halfway mark, with results from 343 members from the elite S&P 500 index on board. Per the latest Earnings Trends, performances of these index participants indicate a 24% increase in total earnings on 9.5% higher revenues. The beat ratio is impressive with 78.4% companies surpassing bottom-line expectations and 75.8% outperforming on the top line.
From the Medical sector (one of the 16 Zacks sectors), we now have Q1 results from 83.1% of its total market cap in the S&P 500 index. Total earnings for these companies are up 14.7% on 8.1% higher revenues, with 88.9% beating EPS and 75% beating revenue estimates.
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 one of the industries latent in it positively can be a negative for the other. For example flu, which causes an increase in medical services utilization, is an earnings driver for the hospital space, while at the same time a negative for insurers as 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 its 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.
Health insurers are likely to have witnessed an increase in premium and enrolment 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 ancillary 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 higher 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 the past many quarters.
Let’s find out where the following healthcare stocks insurers stand ahead of their earning releases on May 7.
Brookdale Senior Living, Inc. (BKD - Free Report) is a leading owner and operator of senior living facilities throughout the United States. The company owns and operates independent, assisted and dementia-care facilities.
The Zacks Consensus Estimate of a loss of 22 cents for the yet-to-be-reported quarter reflects deterioration of 340%. Brookdale Senior carries a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, its Earnings ESP of 0.00%, makes surprise prediction unlikely as the company needs both, a Zacks #3 or better and a positive ESP to be confident about an earnings surprise. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Brookdale Senior Living Inc. Price and EPS Surprise
Amedisys, Inc. (AMED - Free Report) is a leading provider of healthcare in the home. From home health to hospice to personal care, Amedisys team members provide quality, clinically distinctive care to patients every year.
The Zacks Consensus Estimate of 66 cents for the yet-to-be-reported quarter reflects 40.4% year-over-year growth. Amedisys carries a Zacks Rank #3 which increases the predictive power of ESP. However, its Earnings ESP of -0.33%, makes surprise prediction unlikely.
Envision Healthcare Corp. should see an increase in revenues from its Physician Services segment (which contributes nearly 84% of the company’s revenues), driven by synergies from recent acquisitions, same-contract revenue growth as well new-contract growth.
Revenue growth in the segment is expected to come from higher patient volumes, due to the acute flu season in the first quarter. The Zacks Consensus Estimate for revenues from this segment is $1.70 billion, up 9% year over year.
The company’s Ambulatory Service segment will likely report revenue growth from higher procedure volume growth. The Zacks Consensus Estimate for revenues from this segment is $319 million, up 1% year over year.
The Zacks Consensus Estimate of 64 cents per share for the yet-to-be-reported quarter reflects 16.9% year-over-year decline in earnings.
Envision Healthcare carries a Zacks Rank #3, 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: Envision Healthcare to Report Q1 Earnings: What’s Up?).
Envision Healthcare Corporation Price and EPS Surprise
Premier, Inc. (PINC - Free Report) operates as a healthcare alliance. The company brings together hospitals, health systems, physicians and other healthcare providers primarily in the United States. It also maintains clinical, financial and outcomes databases.
The Zacks Consensus Estimate of 66 cents per share for the yet-to-be-reported quarter reflects 26.9% year-over-year growth. Premier carries a Zacks Rank #3 and has an Earnings ESP of -0.38%, which makes surprise prediction difficult.
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