5 Healthcare Players Poised To Beat Q3 Earnings Estimates

The third-quarter earnings season is round the corner. Let’s find out how the health care sector, which includes diversified industries like managed care organizations, clinical, laboratories and diagnostics research, medical equipment, hospitals, and more, is likely to perform this time.
Since the start of this year, the managed care industry or the health maintenance organizations (HMOs), which includes the medical insurance group, has been displaying weakness. Factors like disappointing public exchange business, stringent regulations regarding the proposed mega merger of Anthem Inc. (ANTM) with Cigna Corp. (CI), and Aetna Inc. (AET - Free Report) with Humana Inc. (HUM), increasing medical ratio to name a few, have been the primary reasons behind the bearishness. Also, the different stance of the presidential candidates regarding the ObamaCare and the changes likely to be implemented upon getting elected, added to the uncertainty.

We note that the situation is no different in the third quarter. The Department of Justice has filed suits against the proposed mergers. The mergers, which were scheduled to be completed this year, have now been delayed. In fact, the closure of these deals is now shrouded with uncertainty.
This apart, issues related to the public exchanges business have been adding to the woes. Most insurers incurred losses from this business in the first half of the year and the trend is unlikely to reverse this quarter. Although insurance companies had expected better profitability in 2016 after making meager profits in 2015, the individual exchange business disappointed the firms. Major players incurred losses in this business and are now reducing their participation on the exchanges by exiting unprofitable markets.

However, all is not lost for this sector. In the quarter, HMO industry players are likely to have witnessed an increase in premium from the government businesses – Medicare, Medicare Advantage and Medicaid. A surge in the baby boomer population has led to higher demand for these policies. In 2015, about 55 million people were enrolled in Medicare. This number is expected number to climb to 75 million by 2026, courtesy of the aging of the baby boomers. Humana, Cigna, Aetna, UnitedHealth Group Inc. (UNH - Free Report) had earlier projected growth in their government business.

In addition, higher number of enrollees in the Medicare, Medicaid and Medicare Advantage businesses is expected to have driven membership growth in the third quarter. However, this upside might have been partly offset by a decline in membership on the public exchange business.

The insurers are also likely to see earnings growth on the back of their international operations. Players like Aetna, Cigna and UnitedHealth Group have extended their business worldwide in the wake of stringent regulations on the home turf. However, a strong U.S. dollar will be a drag on the quarterly earnings.

Moreover, strong balance sheets with low leverage and attractive organic cash flow generation, along with excess capital in the form of statutory reserves and parent cash continue to make this sector attractive.
Another healthcare sub sector, which provides clinical services for pets, is poised for growth as the veterinary market continues to strengthen. Also, healthy competition in the lab market continues to drive growth. Higher demand for veterinary services owing to increase in pet population, more knowledge and awareness, better medicines for pets, highly trained doctors, more technology, and improved diagnostics have been catalysts behind earnings growth of this sub sector.
Diagnostic and laboratory research companies are also slated to see earnings improvement owing to a greater health care access, which fuels demand for these services. Growth in the industry is influenced by aging populations and rising demand for preventive care and personalized medical treatments. Small medical labs are competing effectively by providing specialized analyses and establishing their presence in regions with fewer medical facilities.

1 2
View single page >> |


How did you like this article? Let us know so we can better customize your reading experience.


Leave a comment to automatically be entered into our contest to win a free Echo Show.