AET, EVHC, HCA Q3 Earnings: Here are the Key Predictions

Third-quarter earnings have already crossed the halfway mark. As of Oct 26, 229 S&P 500 companies reported results with strong earnings numbers.

Per the latest Earnings Preview, third-quarter results of the 229 S&P 500 members account for 48.1% of the index’s total market capitalization. Total earnings for these companies are up 7.7% year over year on 5% rise in revenues, with 75.5% beating earnings per share estimates and 65.1% topping revenue estimates.

Healthcare Sector Trends

The sector has been in the spotlight ever since Donald Trump became the President. Trump’s intention to repeal and replace the Affordable Care Act, popularly known as Obamacare, has resulted in an uncertain future for the whole sector. As a result, the medical stocks continue to be in focus.

Players in the healthcare industry have largely benefitted from a surge in membership fuelled by the Healthcare Reform. Third quarter is expected to witness an increase in enrollment across Government programs particularly Medicaid and Medicare. While Medicaid sales is driven by Medicaid expansion under Obamacare, Medicare  is in huge demand from the growing population of baby boomers.

Earnings for players in the hospital industry are likely to reflect the softness in volumes persisting throughout the industry. Factors such as payor initiatives to move volumes away from hospitals, rising deductibles and prevalence of high deductible health plans, increased proportion of hospital care to be paid by consumers are driving away volumes and the same is likely to be seen in the quarter.

Nevertheless, aggressive inorganic strategies helped the players achieve fast-paced growth. In addition, new product launches, improving service, expansion into ancillary businesses and expense management strategies are expected to add to the top line.

Moreover, the companies face headwinds  like the rising level of bad debt, demand for increasing investments in technological innovation, integration cost related to acquisitions and high interest expenses on debt-funded acquisitions that are likely to put pressure on the bottom line.

Let’s take a sneak peek into the expected performance of three medical stocks that are scheduled to report earnings on Oct 31.

Aetna Inc.’s( AET third-quarter results are expected to witness a decline in Health Care segment revenues due to lower contribution from Commercial health insurance partly offset by premium increase in Government business. The Zacks Consensus Estimate for the same is $14.4 billion, down 4% year over year.

Medical Benefit Ratio is expected to increase in the quarter, owing to an unfavorable performance in individual Commercial products and suspension of the health insurer fee. The Zacks Consensus Estimate for the same is 84%, up from 82% in the year-ago quarter.

The Zacks Consensus Estimate for total medical membership, one of the key drivers of revenues is 22.14 million, down 4.2% year over year. The decline is likely to be due to lower membership in the company’s public exchange compliant Individual and Small Group products.

However, the company’s continuous focus on managing costs is likely to reduce its operating expenses.

Our proven model shows that Aetna has the right combination of the two key ingredients to beat earnings estimates. It carries a Zacks Rank #2 (Buy) that significantly increases the chances an earnings beat. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Also it has an Earnings ESP of +2.87%.You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter (read more: Will Lower Health Care Revenues Mar Aetna Q3 Earnings?).

Aetna Inc. Price and EPS Surprise

Aetna Inc. Price and EPS Surprise | Aetna Inc. Quote

Envision Healthcare Corp’s EVHC third-quarter results are likely to be impacted by lower revenues from its Ambulatory Services segment, which experienced soft business volumes in the past few quarters.

The company has been suffering from escalating operating expenses for several quarters, due to higher salaries and benefit expenses. The same is expected to be seen in the to-be-reported quarter.

The quarter is also likely to see increased interest expenses as a result of increased borrowings related to the merger and incremental term-loan borrowings to fund recent acquisitions. This, in turn, will dent its operating margins

However, we expect to see an increase in revenues from the company's Physician Services segment, driven by synergy from recent acquisitions and organic growth. Revenue growth is expected to come from higher patient volumes and improved pricing.

Coming to our quantitative model, Envision Healthcare has a Zacks Rank #4 (Sell) and an Earnings ESP of -10.98%. Hence, our proven model can not conclusively say that Envision Healthcare is likely to beat on earnings this quarter.

Note that we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions (read more: Will High Costs Dent Envision Healthcare  Q3 Earnings?).

Envision Healthcare Corporation Price and EPS Surprise

Envision Healthcare Corporation Price and EPS Surprise | Envision Healthcare Corporation Quote

HCA Healthcare, Inc.’s HCA third-quarter results are expected to reflect the prevailing industry-wide softness in volumes.

However, the company’s patient admissions are likely to be sustain on the back of organic and inorganic growth measures. The Zacks Consensus Estimate for total admissions is 483,000, which reflects year-over-year growth of 2.8%.

Recently, the company announced preliminary financial and operating results for the to-be-reported quarter. It reported revenues of approximately $10.7 billion, up 4.1% year over year and adjusted EBITDA of approximately $1.8 billion, down 9.2% year over year.

Earnings per share of $1.21 per share reflected a decline 25% year over year.  The results bore the impact of recent hurricanes, which caused a loss of $140 million in some of the company’s major markets.

Our proven model does not conclusively show that HCA Healthcare is likely to beat on earnings this quarter. This is because the company has an Earnings ESP of 0.00% and a Zacks Rank #5 (Strong Sell) (read more: Will Higher Admissions Aid HCA Healthcare Q3 Earnings).

HCA Holdings, Inc. Price and EPS Surprise

HCA Holdings, Inc. Price and EPS Surprise | HCA Holdings, Inc. Quote

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Aetna Inc. (AET) : Free Stock Analysis Report
 
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