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5 Healthcare Stocks Poised to Beat Earnings Estimates in Q1
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The healthcare sector is one of the largest and most complex in the U.S. economy, accounting for nearly a fifth of the overall gross domestic product (GDP). It is likely to see an overall earnings gain in first-quarter 2020 results on the back of increased demand for its products and services, given the rising incidence of coronavirus pandemic as well as an ageing U.S. populace.
However, one new factor to have impacted the health care sector’s earnings in the March quarter is the COVID-19 syndrome. The sector encompasses a diversified industry varying from health insurance, hospitals, nursing homes, medical devices to pharmaceuticals and others with operations strikingly different from one another. This space is expected to experience a mixed impact from the COVID-19 condition in the impending quarterly release. While some of the business lines like telehealth providers and pharmaceuticals will get a boost amid such global health emergency, others, such as hospitals are at the receiving end.
Below we discuss how some of the industries are placed ahead of their respective first-quarter earnings announcements:
Health Insurers: The health insurance industry has so far had a minimal impact from the COVID-19 fallout. First-quarter results from the industry bellwether UnitedHealth Group Inc. (UNH) reflected a favorable position for the industry with respect to the coronavirus adversity. The health insurer reiterated its earlier-provided guidance for 2020.
While insurers are likely to have benefited from premiums covered under government-sponsored plans, namely Medicare Advantage and Medicaid, Commercial health insurance plans are likely to have been persistently subdued due to stiff competition and more number of employers shifting to Administrative services only (ASO) products, which carry soft profit margins.
The COVID-19 outbreak will provide some relief to insurers’ Medical Loss Ratio (MLR), which is the ratio of premium spent on claims. Since hospitals at large postponed their elective procedures and surgeries, this will positively impact the MLR of health insurers in the form of lower claim outgo. However, this MLR effect will be weak in the first quarter and more visible in the future quarters. A decline in MLR will aid insurers’ margins.
In the first quarter the Zacks Health Insurance industry has declined 15.7% compared with the Zacks S&P 500 Composite decline of 18.4%.
Hospitals: While insurance stocks have been winners with respect to MLR from the suspension of elective surgeries at the hospitals, the entities are likely to suffer a double blow through loss of revenues on one hand and escalating costs for staffing, supplies and preparation for the expected surge in Covid-19 patients on the other. We thus anticipate stressed revenues along with a spike in costs for the first quarter. Many hospital companies, namely MEDNAX, Inc. (MD) and Tenet Healthcare Corp. (THC) withdrew their initial guidance for the first quarter of 2020.
In the first quarter the Zacks Hospital industry has declined 38.5%.
Telehealth Providers: The companies providing telehealth services have been a clear success as demand for telemedicine and telehealth services witnessed a sharp rise, largely owing to homebound Americans under the pandemic-triggered lockdown. The efficiency and low-risk nature of video medical consultation made the said services extremely conducive right now. Teladoc Health, a leading provider of teleheath services, saw an above 100% spike in handling greater than 20,000 virtual medical visits per day. The company now anticipates first-quarter revenue and visit growth of 40% and 70%, respectively, year over year.
The Zacks Medical Services industry has declined 12.2% in the first quarter.
Players in the Pharmaceutical industry dealing in Consumer Health segments are likely to have witnessed expanded sales of over-the-counter products, which include Tylenol analgesics and Listerine mouthwash. Sales soared, mainly owing to buoyancy in demand amid the COVID-19 pandemic. Consumers stockpiled these basic medicines and consumer products due to global shutdowns.
Meanwhile, Medical Devices players might have seen a slump in sales due to a widespread pause on elective surgical procedures by hospitals.
Sector Projections
The latest Earnings Trends report indicates that earnings for the Medical sector are expected to have gained 1.9% in first-quarter 2020, on revenue rise of 8.1%. In fact, 11 of the 16 Zacks sectors are expected to register disappointing earnings in the upcoming performance report.
Stocks That Are Poised to Grow
There are some Industrial Products stocks that are poised to beat on first-quarter earnings. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a positive surprise for these companies.
Chemed Corporation (CHE - Free Report) has an Earnings ESP of +1.78% and a Zacks Rank of 2, currently. It has an estimated earnings growth rate of 25% for the first quarter.
Anthem Inc. (ANTM) has a Zacks Rank #3 and an Earnings ESP of +1.28%. It has an earnings growth forecast of 9.3% for the first quarter.
AMN Healthcare Services Inc. (AMN - Free Report) is Zacks #3 Ranked and has an Earnings ESP of +0.32%. It has an expected earnings growth rate of 5.33% for the first quarter.
Humana Inc. (HUM - Free Report) has an Earnings ESP of +11.37% and a Zacks Rank of 3, presently. It has an earnings growth prediction of 7.8% for the first quarter.
Cigna Corp. (CI - Free Report) has a Zacks Rank #2 and an Earnings ESP of +1.53%. Its earnings growth rate is envisioned at 13.33% for the first quarter.
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5 Healthcare Stocks Poised to Beat Earnings Estimates in Q1
The healthcare sector is one of the largest and most complex in the U.S. economy, accounting for nearly a fifth of the overall gross domestic product (GDP). It is likely to see an overall earnings gain in first-quarter 2020 results on the back of increased demand for its products and services, given the rising incidence of coronavirus pandemic as well as an ageing U.S. populace.
However, one new factor to have impacted the health care sector’s earnings in the March quarter is the COVID-19 syndrome. The sector encompasses a diversified industry varying from health insurance, hospitals, nursing homes, medical devices to pharmaceuticals and others with operations strikingly different from one another. This space is expected to experience a mixed impact from the COVID-19 condition in the impending quarterly release. While some of the business lines like telehealth providers and pharmaceuticals will get a boost amid such global health emergency, others, such as hospitals are at the receiving end.
Below we discuss how some of the industries are placed ahead of their respective first-quarter earnings announcements:
Health Insurers: The health insurance industry has so far had a minimal impact from the COVID-19 fallout. First-quarter results from the industry bellwether UnitedHealth Group Inc. (UNH) reflected a favorable position for the industry with respect to the coronavirus adversity. The health insurer reiterated its earlier-provided guidance for 2020.
While insurers are likely to have benefited from premiums covered under government-sponsored plans, namely Medicare Advantage and Medicaid, Commercial health insurance plans are likely to have been persistently subdued due to stiff competition and more number of employers shifting to Administrative services only (ASO) products, which carry soft profit margins.
The COVID-19 outbreak will provide some relief to insurers’ Medical Loss Ratio (MLR), which is the ratio of premium spent on claims. Since hospitals at large postponed their elective procedures and surgeries, this will positively impact the MLR of health insurers in the form of lower claim outgo. However, this MLR effect will be weak in the first quarter and more visible in the future quarters. A decline in MLR will aid insurers’ margins.
In the first quarter the Zacks Health Insurance industry has declined 15.7% compared with the Zacks S&P 500 Composite decline of 18.4%.
Hospitals: While insurance stocks have been winners with respect to MLR from the suspension of elective surgeries at the hospitals, the entities are likely to suffer a double blow through loss of revenues on one hand and escalating costs for staffing, supplies and preparation for the expected surge in Covid-19 patients on the other. We thus anticipate stressed revenues along with a spike in costs for the first quarter. Many hospital companies, namely MEDNAX, Inc. (MD) and Tenet Healthcare Corp. (THC) withdrew their initial guidance for the first quarter of 2020.
In the first quarter the Zacks Hospital industry has declined 38.5%.
Telehealth Providers: The companies providing telehealth services have been a clear success as demand for telemedicine and telehealth services witnessed a sharp rise, largely owing to homebound Americans under the pandemic-triggered lockdown. The efficiency and low-risk nature of video medical consultation made the said services extremely conducive right now. Teladoc Health, a leading provider of teleheath services, saw an above 100% spike in handling greater than 20,000 virtual medical visits per day. The company now anticipates first-quarter revenue and visit growth of 40% and 70%, respectively, year over year.
The Zacks Medical Services industry has declined 12.2% in the first quarter.
Players in the Pharmaceutical industry dealing in Consumer Health segments are likely to have witnessed expanded sales of over-the-counter products, which include Tylenol analgesics and Listerine mouthwash. Sales soared, mainly owing to buoyancy in demand amid the COVID-19 pandemic. Consumers stockpiled these basic medicines and consumer products due to global shutdowns.
Meanwhile, Medical Devices players might have seen a slump in sales due to a widespread pause on elective surgical procedures by hospitals.
Sector Projections
The latest Earnings Trends report indicates that earnings for the Medical sector are expected to have gained 1.9% in first-quarter 2020, on revenue rise of 8.1%. In fact, 11 of the 16 Zacks sectors are expected to register disappointing earnings in the upcoming performance report.
Stocks That Are Poised to Grow
There are some Industrial Products stocks that are poised to beat on first-quarter earnings. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a positive surprise for these companies.
Chemed Corporation (CHE - Free Report) has an Earnings ESP of +1.78% and a Zacks Rank of 2, currently. It has an estimated earnings growth rate of 25% for the first quarter.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Anthem Inc. (ANTM) has a Zacks Rank #3 and an Earnings ESP of +1.28%. It has an earnings growth forecast of 9.3% for the first quarter.
AMN Healthcare Services Inc. (AMN - Free Report) is Zacks #3 Ranked and has an Earnings ESP of +0.32%. It has an expected earnings growth rate of 5.33% for the first quarter.
Humana Inc. (HUM - Free Report) has an Earnings ESP of +11.37% and a Zacks Rank of 3, presently. It has an earnings growth prediction of 7.8% for the first quarter.
Cigna Corp. (CI - Free Report) has a Zacks Rank #2 and an Earnings ESP of +1.53%. Its earnings growth rate is envisioned at 13.33% for the first quarter.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
See their latest picks free >>