The second-quarter earnings season is presently at a high point. As of Jul 27, 265 S&P 500 members released their earnings results.
Per the latest Earnings Preview, performances of these index participants indicate a 23.6% rise in total earnings on 10.1% revenue improvement. Moreover, 80.8% companies have surpassed bottom-line expectations and 72.1% outperformed on the top-line front.
The S&P 500 companies’ earnings are expected to grow 23.6% from the year-ago quarter on an 8.8% rise in revenues this earnings season.
What to Expect From Medical Sector?
Medical — one of the broader sectors among the 16 Zacks sectors — is expected to record earnings growth this season. For the quarter under review, the projected earnings growth rate for the sector is 13.2% on 6.9% revenue improvement.
Factors Favoring the Medical Space
The U.S. Medical industry currently gains on solid R&D prospects and positive regulatory tidings.
Further, the minimally-invasive robotic surgeries are creating a revolution in the industry. The United States has been witnessing increased usage of the surgical procedure which involves fewer incisions to reduce patients’ trauma.
Further, a bipartisan two-year suspension of ‘Medical Device’ tax earlier this year has been a growth driver. The deferral of the 2.3% excise tax on Medical Product and Medical Device manufacturers is likely to encourage massive investment in the sectors.
Clearly, the Medical industry is fast catching up with the digital data era. An enormous size of data can now be captured through technology for deriving business insights. This helps the healthcare sector provide better care and reduce waste. Resultantly, EHR trends are gaining popularity in the United States.
Meanwhile, U.S. ties with North Korea have strengthened. In the latest historic summit with President Kim Jong-un, Trump put the age-old war tactics on hold with Korea, which is a major positive.
Such developments are likely to drive results of these companies this earnings season.
Possible Deterrents
Currently, the U.S. economy is coping with certain geopolitical issues. One such matter of concern is the start of the U.S.-China trade war. President Trump has implemented $34 billion of import duties on Chinese goods. China retaliated by imposing tariffs on U.S. exports of $3 billion.
This can be a serious threat to the U.S. Medical Products industry that sells about $4.7 billion worth of goods annually to China and imports a total of $5 billion of the same (an article by Christian B. Jones in Mondaq). Although it would be too early for these issues to dent second-quarter results, analysts believe that these might have some adverse effect on the earnings results of the healthcare companies.
What Our Model Says
According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a fair chance of beating estimates if it also has a positive Earnings ESP. Sell-rated stocks (Zacks Rank #4 or 5) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Against this backdrop, let’s take a look at a few of the major Medical Product companies scheduled to release second-quarter results on Aug 1:
Express Scripts Holding Company’s ESRX results are likely to gain from the Pharmacy Benefit Management segment (“PBM”) unit. However, the company is getting acquired by Cigna Corporation by 2018-end. (Read More: Can PBM Unit Boost Express Scripts' Q2 Earnings?)
For the quarter to be reported, the Zacks Consensus Estimate for earnings is pegged at $2.20 per share, showing year-over-year growth of 27.2%. The same for revenues is pinned at $25.36 billion, reflecting year-over-year growth of 0.1%. On average, the company delivered a positive earnings surprise of 1.3% over the last four quarters.
Our quantitative Zacks model predicts an earnings beat for the company, given the combination of a Zacks Rank of 3 and an Earnings ESP of +0.46%.
Express Scripts Holding Company Price and EPS Surprise
Express Scripts Holding Company Price and EPS Surprise | Express Scripts Holding Company Quote
DaVita Inc.’s DVA results are expected to grow on the back of the company’s Kidney Care business. Additionally, strategic collaborations are possible tailwinds. (Read More: Can Kidney Care Business Drive DaVita's Q2 Earnings?)
For the quarter to be reported, the Zacks Consensus Estimate for earnings is pegged at 97 cents a share, reflecting year-over-year growth of 5.4%. The same for revenues is pinned at $2.88 billion, showing a year-over-year decline of 25.7%. On average, the company delivered a positive earnings surprise of 0.9% over the last four quarters.
Our quantitative Zacks model predicts an earnings beat for the company, given the combination of a Zacks Rank of 2 and an Earnings ESP of +0.86%.
Humana Inc.’s HUM results are likely to witness strength in individual Medicare Advantage membership, driven by strong segmental performances. However, a gradual surge in the company’s operating expenses is likely to put margins under pressure. (Read More: What's in the Cards for Humana Stock in Q2 Earnings?)
For the quarter to be reported, the Zacks Consensus Estimate for earnings is pegged at $3.79 a share, reflecting growth of 8.6% year over year. The same for revenues is pinned at $14.16 billion, indicating a year-over-year rise of 4.6%. On average, the company has a positive earnings surprise of 6.2% for the last four quarters.
However, our quantitative Zacks model does not predict an earnings beat for the company, given the combination of a Zacks Rank of 2 and an Earnings ESP of -1.38%.
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