Humana Inc. (HUM) is set to report second-quarter 2014 earnings results on Jul 30, 2014. Last quarter, it posted a 21.13% positive earnings surprise. Let us see how things are shaping up for this announcement.
Factors Affecting the Past Quarter
Humana is well positioned in terms of its strong Medicare business, expansion of business platform and stable credit ratings. The raised guidance for Medicare stand-alone PDP membership, in particular, increases optimism. However, mounting expenses, competitive pressure and high debt levels are likely to weigh on earnings this quarter.
In addition, restriction on charging higher premiums from people with pre-existing medical conditions should increase benefit expenses of Humana further. Moreover, the U.S. economic weakness, which has been adversely affecting operating results and cash flow, raises skepticism about the company’s ability to engage in deleveraging activities to improve the debt-to-capital ratio.
Earnings Whispers?
Our proven model does not conclusively show that Humana is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
Zacks ESP: Humana has an ESP of –1.83%. This is because the Most Accurate Estimate stands at $2.15 while the Zacks Consensus Estimate is pegged at $2.19 per share, making the difference –1.83%.
Zacks Rank: Humana’s Zacks Rank #2 (Buy) increases the predictive power of ESP, but we need to have a positive ESP to be confident about an earnings beat.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some healthcare service providers you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Gentiva Health Services Inc. (GTIV) has Earnings ESP of +37.50% and a Zacks Rank #1 (Strong Buy).
Health Net Inc. (HNT) has Earnings ESP of +1.79% and a Zacks Rank #2.
WellCare Health Plans, Inc. (WCG) has Earnings ESP of +3.47% and a Zacks Rank #3 (Hold).
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