5 Healthcare Stocks to Beat on Q2 Earnings Despite Coronavirus

The healthcare sector is one of the largest sectors and the most complex in the US economy, accounting for nearly a fifth of the overall gross domestic product (GDP). It is likely to see an overall revenue gain in second-quarter 2020 results on the back of increased demand for its products and services, given the rising incidence of coronavirus cases as well as an ageing U.S. populace. However, escalating costs incurred by companies for investment in technology, development of new products and services and adapting to the new environment created by the COVID-19 pandemic might have dented earnings to some extent.

One major factor that is to likely to have impacted the health care sector’s earnings in the June quarter is the COVID-19 syndrome. The sector encompasses diverse  industries varying from health insurance, hospitals, nursing homes, medical devices to pharmaceuticals and others with operations strikingly different from one another. This space is expected to experience a mixed impact from the COVID-19 condition in the impending quarterly release. While some of the business lines like telehealth providers and pharmaceuticals are expected to have got a boost amid such global health emergency, others, such as hospitals are at the receiving end.

Below we discuss how some of the industries are placed ahead of their respective second-quarter earnings announcements:

Health Insurers: The health insurance industry has so far had a minimal impact from the COVID-19 outbreak. Second-quarter results from the industry bellwether UnitedHealth Group Inc. UNH reflected a favorable position for the industry with respect to the coronavirus adversity. The health insurer reiterated its earlier-provided guidance for 2020.

While insurers are likely to have benefited from premiums covered under government-sponsored plans, namely Medicare Advantage and Medicaid, Commercial health insurance plans are likely to have remained subdued due to stiff competition and because more number of employers shifted to Administrative services only (ASO) products, which have soft profit margins.
The COVID-19 outbreak provided some relief to insurers’ Medical Loss Ratio (MLR), which is the ratio of premium spent on claims. Since hospitals at large postponed their elective procedures and surgeries, this is likely to have positively impacted the MLR of health insurers in the form of lower claim outgo. A decline in MLR is expected to have aided insurers’ margins.

In the second quarter, the Zacks Health Insurance industry has  gained 23.9% compared with the Zacks S&P 500 composite’s increase of 25%.

Hospitals: While insurance stocks have been winners with respect to MLR from the suspension of elective surgeries at the hospitals, the same is likely to have suffered a double blow through loss of revenues on one hand (due to ceasing of elective procedures to attend to COVID-19 infected patients) and escalating costs for staffing, supplies and preparation for the anticipated surge in Covid-19 patients on the other. Thus revenues are expected to have been stressed and costs flared up for the second quarter.

HCA Healthcare, Inc. HCA the leading hospital company in the United States reported lower admissions, earnings as well as revenues for the same time frame. The company’s results lend a broad view of the industry. Most companies halted share buybacks in order to preserve cash amid these uncertain economic times. Therefore the bottom line will be bereft of the extra support provided by share repurchases.

In the secondquarter, the Zacks Hospital industry has gainedd 16.3%.

Telehealth Providers: The companies providing telehealth services have been a clear success as demand for telemedicine and telehealth services witnessed a sharp rise, largely owing to homebound Americans who are on pandemic-triggered lockdown. The efficiency and contactless nature of the video medical consultation made the said services extremely conducive right now. Teladoc Health, a leading provider of teleheath services, saw an exemplary jump in both virtual health visits as well as membership.

The Zacks Medical Services industry has gained 29.4% in the second quarter.

Pharmacies & Drug Stores: Companies in this industry are taking a hit from the worldwide shutdown that has hitherto totally rattled the global supply chain of all types of drugs. Brand name drugs with high-profit margins are protected with a reliable supply chain. However, the low-margin generic drugs, which have a fragile supply-chain network, are bearing the brunt of the existing economic slump. Drug retailers are also taking a beating from a significant rise in medicine prices, stemming from the inflated costs of raw materials of drugs. Further, the ongoing pandemic situation, which massively slowed down production, is causing drug shortage as well, particularly in emergency care, anesthesia and pain management areas besides in medicines like antibiotics, vitamins and other essential products. This market uncertainty is taking a huge toll on the retail pharmacy and drug store business and such downsides might reflect on the impending second-quarter releases.

The Zacks Retail - Pharmacies and Drug Stores industry has gained 8.96% in the second quarter

Sector Projections

The latest Earnings Trends indicate that the Medical sector’s second-quarter bottom line is expected to have declined 6.9% while the top line is likely to have inched up 1.2%

Stocks That Are Poised to Beat

There are some healthcare stocks that are poised to beat on second-quarter earnings. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a positive surprise for these companies. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Anthem Inc. ANTM currently has a Zacks Rank #2 and an Earnings ESP of +4.91%. It has an earnings growth forecast of 15.7% for the second quarter. You can see the complete list of today’s Zacks #1 Rank stocks here.

Teladoc Health, Inc. TDOC is presently Zacks #3 Ranked and has an Earnings ESP of +20.51%. It has an expected earnings growth rate of 16.67% for the second quarter.

Molina Healthcare, Inc. MOH has an Earnings ESP of +4.08% and a Zacks Rank of 2, presently. It has an earnings growth prediction of 2.94% for the second quarter.

Cigna Corp. CI has a Zacks Rank #2 and an Earnings ESP of +2.68%, currently. Its earnings growth rate is envisioned at 8.15% for the second quarter.

CareDx, Inc. CDNA has a Zacks Rank #3 and an Earnings ESP of +68.42% at present. Its earnings growth rate is projected at 13.33% for the second quarter.

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Cigna Corporation (CI): Free Stock Analysis Report

Molina Healthcare, Inc (MOH): Free Stock Analysis Report

HCA Healthcare, Inc. (HCA): Free Stock Analysis Report

Anthem, Inc. (ANTM): Free Stock Analysis Report

Teladoc Health, Inc. (TDOC): Free Stock Analysis Report

CareDx, Inc. (CDNA): Free Stock Analysis Report

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