Health Net, Inc. HNT is set to report first-quarter 2015 earnings results on May 4, 2015. Last quarter, it posted a 14.04% positive earnings surprise. Let us see how things are shaping up for this announcement.
Factors Affecting the Past Quarter
During the last quarter, Health Net undertook initiatives that are expected to boost the top line and thereby earnings. The initiatives include the Accountable care arrangement with John Muir Health, alliance with Tenet Healthcare Corp. THC, rollout of palliative care programs in California and Oregon, and the contract extension with the U.S. Department of Defense.
These deals have not only strengthened Health Net’s resources but have also made way for increased memberships. Additionally, strong capital deployment efforts are expected to lower share count, in turn bolstering earnings per share.
However, the rate of customer attrition in the health plans, a weak government contracts segment and adverse effects of the Affordable Care Act are likely to weigh on the company’s financials to some extent.
Earnings Whispers?
Our proven model does not conclusively show that Health Net is likely to beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP 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: Health Net has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 69 cents per share.
Zacks Rank: Health Net carries a Zacks Rank #3 (Hold) which increases the predictive power of ESP; but when combined with a 0.00% ESP, it makes surprise prediction difficult.
We caution against Sell-rated stocks (Zacks Rank #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some stocks in the health care space which, according to our model, have the right combination of elements to post an earnings beat this quarter:
HCA Holdings, Inc. HCA has an Earnings ESP of +0.75% and a Zacks Rank #1 (Strong Buy).
WellCare Health Plans, Inc. WCG has an Earnings ESP of +7.14% and a Zacks Rank #3.
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