Rising patient volumes and patient days, and demand for more affordable plans, telehealth services and outpatient surgeries are expected to boost first-quarter 2023 results of healthcare stocks. These companies are part of the broader Zacks Medical sector (one of the 16 broad Zacks sectors within the Zacks Industry classification). Technological innovations and large-scale adoptions are expected to have enhanced efficiencies for companies like Humana Inc. HUM, Viatris Inc. VTRS, agilon health, inc. AGL and Cano Health, Inc. CANO. These companies focus on technological improvements to stay ahead of the competition.
Identifying Potential Outperformers
With multiple healthcare firms crowding the investment space, it is not an easy task for investors to pinpoint stocks that have the potential to deliver an earnings beat. While it is impossible to be sure about such outperformers, our proprietary methodology makes it fairly simple.
With the help of the Zacks Stock Screener, we have identified four companies, HUM, VTRS, AGL and CANO, which are poised to outshine the Zacks Consensus Estimate in first-quarter earnings. These stocks have the ideal combination of two ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy), #3 (Hold) — to surpass expectations. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Before we get into the details of factors that might have influenced first-quarter performance, let’s take a look at the sector projections. Per the latest Earnings Preview, the medical sector’s first-quarter 2023 earnings are estimated to decline 22.4%, while revenues are expected to increase 1%. While higher volumes, admissions and rising health awareness are expected to have aided the companies’ revenues, growing utilization is expected to have triggered costs, affecting profits. Also, technological innovations have been hurting the companies’ margins.
Factors Influencing Q1 Results
The healthcare market is one of the largest and most complex in the U.S. economy. It encompasses hospitals, medical services, nursing homes, health insurance, medical devices, pharmaceuticals and other industries. United States’ growing aging population and the rise in demand for health products and services are constant sales boosters for companies operating in the healthcare space.
Rising inpatient admissions and outpatient visit volumes in the first quarter are likely to have benefited healthcare stocks. The increasing undertaking of deferred non-emergency procedures is anticipated to have positioned healthcare providers for growth in the first quarter. However, some non-emergency procedures are expected to have been paused by the customers due to inflationary pressure and economic volatility, partially offsetting the growing volumes.
With labor shortages significantly improving in the first quarter, margins for industry players are expected to have witnessed an upside. Furthermore, technological innovations and improvements are expected to have enabled the players to optimize hospital services, minimize unnecessary expenses and enhance the patient experience.
Leveraging AI and automation is likely to have improved clinical workflow management and medical diagnosis utilized by hospitals and other healthcare facilities. This is likely to have reduced patients’ waiting time and their treatment costs.
Growth efforts, product developments, investments in technological innovations and rising volumes triggering higher utilizations are likely to have increased costs for the healthcare companies. This is expected to have resulted in a year-over-year decline in earnings for some companies. Nevertheless, the higher operating expenses are expected to have been partially offset by lower staffing challenges.
Potential Q1 Outperformers
Below we have listed four healthcare stocks that have the right mix of elements to pull off a beat this earnings season.
Headquartered in Louisville, KY, Humana is one of the largest healthcare plan providers in the United States. Its first-quarter earnings are expected to have benefited from membership growth and rising premiums. Improved per-member individual Medicare Advantage sales figures are likely to have positioned the company for an earnings beat this time around.
The Zacks Consensus Estimate for Humana’s first-quarter earnings is pegged at $9.25 per share, suggesting an increase of 15.1% from the year-ago reported figure. It beat earnings estimates in all the past four quarters, with an average of 13%. HUM has an Earnings ESP of +0.15% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Humana Inc. Price and EPS Surprise
Humana Inc. price-eps-surprise | Humana Inc. Quote
Based in Canonsburg, PA, Viatris is a global healthcare company. Its expanding product offerings, including multiple types of drugs and pharmaceutical ingredients, are likely to have benefited first-quarter earnings. The company’s global restructuring program is expected to have triggered resource optimization, boosting efficiency and margins.
The Zacks Consensus Estimate for Viatris’s first-quarter earnings is pegged at 70 cents per share, which has improved 1.4% in the past 30 days. VTRS has an Earnings ESP of +3.45% and a Zacks Rank #3. It beat earnings estimates in three of the past four quarters and met once, with the average surprise being 7.1%.
Viatris Inc. Price and EPS Surprise
Viatris Inc. price-eps-surprise | Viatris Inc. Quote
Headquartered in Austin, TX, agilon health provides healthcare services for senior patients in the United States. Its first-quarter earnings are likely to have gained from growing Medicare Advantage memberships and expanding networks. New partnerships and improving operations are likely to aid its profits, partially offset by growing geography entry costs.
The Zacks Consensus Estimate for AGL’s first-quarter earnings is pegged at 3 cents per share compared with the year-ago quarter’s breakeven earnings. Estimates have remained stable over the past month. The consensus mark for revenues indicates 65.2% year-over-year growth. The company has an Earnings ESP of +11.11% and a Zacks Rank #3.
Agilon Health, Inc. Price and EPS Surprise
Agilon Health, Inc. price-eps-surprise | Agilon Health, Inc. Quote
Miami-based Cano Health offers value-based primary care medical services in the United States and Puerto Rico. Rising memberships and lower third-party medical costs are likely to have positioned CANO for better-than-expected first-quarter earnings. The utilization of available capacity to improve profitability is likely to have aided the company in the quarter under review.
The Zacks Consensus Estimate for Cano Health’s first-quarter bottom line is pegged at a loss of 14 cents per share, which has improved 6.7% in the past 30 days. CANO has an Earnings ESP of +29.83% and a Zacks Rank #3. It beat earnings estimates in all the past four quarters, with the average being 102.5%.
Cano Health, Inc. Price and EPS Surprise
Cano Health, Inc. price-eps-surprise | Cano Health, Inc. Quote
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