4 Healthcare Stocks Likely To Beat Estimates In Q4

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%.

Molina Healthcare, Inc Quote