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4 Healthcare Stocks Likely to Beat Estimates in Q4

Zacks Equity Research

The U.S. healthcare industry gave a solid performance in the first nine months of 2018 on the back of increased demand for healthcare products and services, innovation, shift to quality care, increased consolidation and investment in improving efficiency, partly offset by an increase in expenses.

Factors to Affect Q4 Earnings

We expect the industry to sustain its stellar run in the final quarter of 2018, especially with 10,000 people turning 65 everyday and in obvious need for healthcare. The prevalence of chronic health diseases will be the driver of various healthcare services, thus contributing to the industry’s growth.

Moreover, increasing usage of drugs has driven demand for rehabilitation centers.  Healthcare spending, which is estimated to be around 18% of the country’s GDP in 2018, is expected to increase to 20% in 2026. While this has increased pressure on government budget, the industry, overall, stands to gain.

Sector participants also stand to benefit from the slashed tax rate to 21% from 35%, which has aided margin growth. Also, a bipartisan two-year suspension of a 2.3% excise tax on Medical Products and Medical Device manufacturers at the beginning of 2018 has encouraged massive investments in the medical product sector, thus driving growth.

The healthcare sector is rapidly embracing the use of technology for efficiency gains. Players have been expanding their capabilities in advanced technologies like blockchain and artificial intelligence — neural networks, machine learning and deep learning — as well as genomics, with a focus on controlling total cost of care and providing quality care.

While these investments will lead to efficiency gains, they will also push up expenses, thereby straining margins.

However, share buyback led by strong capital levels of healthcare companies will provide an extra cushion to the bottom line.

Zacks Methodology

Given the existence of numerous players in the healthcare industry, finding the right stocks with the potential to beat estimates might be quite a daunting task.

However, our proprietary Zacks methodology, makes this routine fairly simple for investors.

One can narrow down the choices by focusing on stocks that have the desirable combination of a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

Our research shows that for stocks with this combination, chances of a positive earnings surprise are significantly as high as 70%.

Earnings ESP is our proven methodology to determine stocks with maximum chance to deliver an earnings surprise. This key element provides the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter

Here we present four stocks poised to beat on earnings this reporting cycle.

Our Picks

Molina Healthcare, Inc. MOH has an Earnings ESP of +2.89% and a Zacks Rank #1. The Zacks Consensus Estimate for fourth-quarter 2018 earnings stands at $1.52 which reflects year-over-year growth of 347%. The company’s earnings topped estimates in the last four reported quarters, the average positive surprise being 83%. The company is slated to release earnings on Feb 11, after the market close. You can see the complete list of today’s Zacks #1 Rank stocks here .

Molina Healthcare, Inc Price and EPS Surprise

Molina Healthcare, Inc Price and EPS Surprise | Molina Healthcare, Inc Quote

Encompass Health Corporation EHC has an Earnings ESP of +0.79% and a Zacks Rank #3. The Zacks Consensus Estimate for fourth-quarter 2018 earnings stands at 79 cents per share, which reflects year-over-year growth of 12.9%. The company’s earnings topped estimates in the last four reported quarters, the average positive surprise being 13.84%. The company is slated to release earnings on Feb 7, after market close.

Encompass Health Corporation Price and EPS Surprise

Encompass Health Corporation Price and EPS Surprise | Encompass Health Corporation Quote

NxStage Medical, Inc. NXTM: The company develops and markets innovative products for the treatment of end-stage renal disease (ESRD) and acute kidney failure. The company is poised to trump the Zacks Consensus Estimate as it has a favorable combination of a Zacks Rank #3 and an Earnings ESP of +33.33%.

NxStage Medical, Inc. Price and EPS Surprise

NxStage Medical, Inc. Price and EPS Surprise | NxStage Medical, Inc. Quote

Regeneron Pharmaceuticals Inc. REGN has an Earnings ESP of +6.8% and a Zacks Rank #3. The Zacks Consensus Estimate for fourth-quarter 2018 earnings stands at $5.68. The company’s earnings topped estimates in the last four reported quarters at an average of 10.97%. The company is slated to release earnings on Feb 14, before the market opens.

Regeneron Pharmaceuticals, Inc. Price and EPS Surprise

Regeneron Pharmaceuticals, Inc. Price and EPS Surprise | Regeneron Pharmaceuticals, Inc. Quote

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