Healthcare Stocks Show Promise: Q2 Earnings and Growth Potential

4 Healthcare Stocks Poised to Beat Q2 Earnings Estimates

The second-quarter 2024 earnings season for healthcare stocks is in full swing now. Per early reports, rising patient volumes, revenue per patient days, utilization, premium rate hikes coupled with rising demand for affordable healthcare plans and technological enhancements have led to growth in healthcare stocks, which is part of the broader Zacks Medical sector (one of the 16 broad Zacks sectors within the Zacks Industry). While there were positives, increasing expenses due to increased utilization partly dampened the results. Certain HMO companies are anticipated to experience a decline in memberships, particularly in Medicaid, as a result of redeterminations. With our unique research and deep market analysis, we have identified four healthcare stocks using the Zacks Stock Screener that show promise to exceed the Zacks Consensus Estimate for second-quarter earnings. These include The Cigna Group CI, Universal Health Services, Inc. UHS, HCA Healthcare, Inc. HCA and Tenet Healthcare Corporation THC. Before delving into the specifics of what could have impacted second-quarter performance, let's examine the sector forecasts. According to the latest Earnings Trends report dated Jul 17, the medical sector is projected to experience 18.4% growth in earnings for the second quarter, while revenues are anticipated to rise 7.2%. Factors at Play The healthcare sector encompasses a vast and intricate landscape within the U.S. market and is one of the biggest and most complex markets. It spans across hospitals, medical services, nursing homes, health insurance, medical devices, pharmaceuticals, outpatient, and home healthcare, among other industries. The demographic trends, i.e., the expanding aging population in the domestic market and the increasing demand for affordable health products and services, are expected to have boosted the top line of healthcare companies in the second quarter. Per Centers for Medicare and Medicaid Services, U.S. healthcare spending is expected to grow 5.2% in 2024. Also, increased patient volumes in the second quarter are likely to bolster utilization for healthcare stocks. Higher revenue per admission is also expected to have contributed to further top-line improvement. While most companies in the HMO space are likely to have suffered from lower Medicaid membership due to redeterminations, higher Marketplace and Medicare membership levels must have acted as an offset. As more senior citizens resumed elective procedures previously delayed due to pandemic-related restrictions, volumes are expected to have received a boost. Nonetheless, higher utilization is likely to have increased medical costs and related expenses during the second quarter, potentially containing profit margins. To counter the medical cost trends, some companies (like Cigna) are expected to have implemented premium rate hikes, which should have offered some relief. Companies providing care services are using partnerships to target interventions, reduce costs, and enhance health outcomes. Companies are expected to have taken innovative steps like improving pay, and reducing burnout, leading to only a modest increase in salaries and wages. Health insurers are likely to have benefited from product developments, technological adaptations, premium growth and higher investment income (thanks to a high interest rate environment) in the second quarter. Rising demand in the commercial market is likely to have benefited some companies during the period. Technological developments and innovations are likely to enable hospital players to optimize services and enhance the overall patient experience in a bid to counter future labor supply issues. The integration of artificial intelligence and automation is likely to improve clinical workflow management and medical diagnosis within hospitals and healthcare facilities. More remote care provided is likely to have resulted in savings for healthcare companies. Consequently, patients' waiting times may have been reduced, and treatment costs potentially lowered. Identifying Potential Outperformers Identifying healthcare stocks with the potential for an earnings beat can be challenging amid the crowded investment landscape. However, our proprietary methodology simplifies this task, offering insights into potential outperformers. The stocks have the ideal combination of two ingredients -- a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) -- to surpass expectations. Our research shows that for stocks with these combinations, the chances of an earnings beat are as high as 70%. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter. Q2 Prominent Picks The Cigna Group, headquartered in Bloomfield, CT, is one of the leading healthcare plan providers. The company's second-quarter earnings are expected to have gained from sustained demand for CI's specialty pharmacy services, benefiting the Evernorth unit. Premium rate hikes and an expanding customer base in Cigna Healthcare business are likely to have positioned the company for an earnings beat this time around. The Zacks Consensus Estimate for Cigna's second-quarter earnings is pegged at $6.42 per share, which remained stable over the past week. It beat earnings estimates in all the past four quarters, with an average of 3.3%. CI has an Earnings ESP of +1.59% and a Zacks Rank #2. Headquartered in King of Prussia, PA, Universal Health Services is also a good pick. It operates behavioral health centers, surgical hospitals, acute care hospitals, and radiation oncology centers and provides commercial health insurance services. UHS's second-quarter earnings are expected to have benefited from rising admissions and revenue per adjusted admission. Sustained demand for UHS's Behavioral Health Care Services and strong contribution from Acute Care Hospital Services are likely to have positioned the company for an earnings beat this time around. The Zacks Consensus Estimate for Universal Health's second-quarter earnings is pegged at $3.37 per share, which increased 8 cents in the past month. It beat earnings estimates in all the past four quarters, with an average of 8.1%. UHS has an Earnings ESP of +8.65% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here. Universal Health Services, Inc. Price and EPS Surprise Universal Health Services, Inc. price-eps-surprise | Universal Health Services, Inc. Quote You may also consider Nashville, TN-based hospital operator HCA Healthcare, which has an Earnings ESP of +7.10% and a Zacks Rank #2. Its second-quarter earnings are likely to have gained from improved admissions, payer mix and occupancy rates. Growing Medicare and commercial businesses are likely to boost the company's results in the second quarter. The Zacks Consensus Estimate for HCA Healthcare's second-quarter earnings indicates a 15.9% improvement from a year ago. The estimate remained stable over the past week. It beat earnings estimates thrice in the past four quarters and missed once, the average surprise being 5.6%. Lastly, we have Dallas, TX-based Tenet Healthcare, a renowned hospital company. Expanding patient volumes, improved pricing yield, and the service line are likely to have positioned THC for better-than-expected second-quarter earnings. The Zacks Consensus Estimate for Tenet Healthcare's bottom line for the to-be-reported is pegged at $1.84 per share, which indicates 27.8% year-over-year growth. THC has an Earnings ESP of +7.26% and a Zacks Rank #2. It beat earnings estimates in each of the past four quarters, with an average of 56.5%. Tenet Healthcare Corporation Price and EPS Surprise Tenet Healthcare Corporation price-eps-surprise | Tenet Healthcare Corporation Quote Infrastructure Stock Boom to Sweep America A massive push to rebuild the crumbling U.S. infrastructure will soon be underway. It's bipartisan, urgent, and inevitable. Trillions will be spent. Fortunes will be made. The only question is "Will you get into the right stocks early when their growth potential is greatest?" Zacks has released a Special Report to help you do just that, and today it's free. Discover 5 special companies that look to gain the most from construction and repair to roads, bridges, and buildings, plus cargo hauling and energy transformation on an almost unimaginable scale. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Universal Health Services, Inc. (UHS) : Free Stock Analysis Report Cigna Group (CI) : Free Stock Analysis Report Tenet Healthcare Corporation (THC) : Free Stock Analysis Report HCA Healthcare, Inc. (HCA) : Free Stock Analysis Report The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

3 Top-Rated Healthcare Stocks With 20% to 35% Upside Potential

Since the bull market kicked off in October 2022, a few big artificial intelligence (AI) players have led the charge higher. But the game is changing, thanks to a better-than-expected June inflation report, which sparked expectations for a Fed rate cut - and a more favorable macro backdrop for small-caps, dividend-paying stocks, and other recent stock market laggards. With investors rotating out of Big Tech leaders and market breadth improving, some overlooked stocks are getting their moment to shine. Considering the healthcare industry's resilient nature and steady demand, investors looking to diversify their portfolios might want to consider these three "Strong Buy"-rated stocks, with analysts predicting 20% upside potential or more for these picks. Healthcare Stock #1: Zoetis New Jersey-based Zoetis Inc. (ZTS) is a leading animal health company. For over 70 years, Zoetis has pioneered methods to predict, prevent, detect, and treat animal illnesses. The company remains committed to supporting those who raise and care for animals globally, including veterinarians, pet owners, livestock farmers, and ranchers. Zoetis' premier portfolio and pipeline of medicines, vaccines, diagnostics, and technologies make a significant impact in more than 100 countries. Valued at about $82 billion by market cap, Zoetis' shares have gained just 3.2% over the past 52 weeks, and the stock is off more than 10% on a YTD basis. Over the past three months, though, the stock is up 20.4%, outpacing the broader S&P 500 Index's ($SPX) 10.9% gain and S&P 500 Healthcare Sector SPDR's (XLV) return of 6% during the same time frame. The company has a five-year streak of consecutive dividend increases. On May 22, Zoetis revealed a quarterly dividend of $0.432 per share, set to be distributed to its shareholders on Sept. 4. Its annualized dividend of $1.73 translates to a 0.97% dividend yield. Plus, with a conservative payout ratio of 28.77%, there's plenty of potential for future dividend hikes. From a valuation standpoint, ZTS stock is priced at 31.61 times forward earnings and 9.72 times sales, lower than its own five-year averages of 36.20x and 10.65x, respectively. Following its better-than-expected Q1 earnings results ahead of the bell on May 2, shares of Zoetis jumped 5.5% on the day. The company posted revenue of $2.2 billion, reflecting a solid 10% improvement from the year-ago quarter, fueled by strong performance across its U.S. and international segments. U.S. revenue soared to $1.2 billion, a remarkable 16% annual increase. The international segment posted $1 billion in revenue, reflecting a solid 3% year-over-year growth. During the quarter, the company earned $1.38 per share on an adjusted basis, marking a 5.3% annual jump. Commenting on the Q1 performance, CEO Kristin Peck noted, "Our companion animal portfolio grew an impressive 20% operationally, fueled by our innovative franchises in pet parasiticides, osteoarthritis pain, and dermatology." For fiscal 2024, management projects revenue to range between $9.1 billion and $9.2 billion. Adjusted net income is expected to be between $2.6 billion and $2.7 billion, while adjusted EPS is forecast to land between $5.71 and $5.81. The company is expected to announce its fiscal Q2 earnings results on Tuesday, Aug. 6. Analysts tracking Zoetis project the company's profit to climb 8.3% year over year to $5.76 in fiscal 2024, and rise another 9.7% to $6.32 per share in fiscal 2025. ZTS stock has a consensus "Strong Buy" rating overall. Of the 13 analysts covering the stock, 12 suggest a "Strong Buy," and the remaining one gives a "Moderate Buy" rating. The average analyst price target of $213.75 indicates a potential upside of 20.5% from the current price levels. The Street-high price target of $248 suggests that ZTS stock could rally as much as 39.8%. Healthcare Stock #2: Becton, Dickinson and Company With a market cap of about $67 billion, New Jersey-based Becton, Dickinson, and Company (BDX) is one of the world's largest medical technology companies. The company is transforming healthcare by advancing medical discovery, diagnostics, and care delivery through three dynamic segments: BD Medical, BD Life Sciences, and BD Interventional. Operating globally, BDX partners with organizations to tackle major health challenges, improve outcomes, reduce costs, increase efficiency, and expand healthcare access. Shares of Becton Dickinson have dropped 9.6% over the past 52 weeks and 5.6% on a YTD basis. With a remarkable 51-year track record of consecutive dividend increases, the Dividend King is committed to rewarding its shareholders. On June 28, the company declared a quarterly dividend payment of $0.95 per share. This brings its annualized dividend to $3.80 per share, offering an attractive dividend yield of 1.62%. Plus, BDX maintains a payout ratio of 30.17%, striking a healthy balance between rewarding shareholders and pursuing growth opportunities. In terms of valuation, the stock is trading at 17.95 times forward earnings and 3.49 times sales, which is lower than both its industry peers and its own five-year averages. Becton Dickinson shares jumped 2.8% on May 2 after the company's Q2 earnings results exceeded Wall Street's expectations. Revenue hit $5.1 billion, marking a 4.6% year-over-year increase. Additionally, adjusted EPS soared 10.8% annually to $3.17, surpassing estimates by a 7.1% margin. During the quarter, the company excelled across all three of its segments, with BD Interventional leading the charge. This unit, encompassing Surgery, Peripheral Intervention (PI), and Urology and Critical Care (UCC), achieved 9% annual revenue growth. BD Medical and BD Life Sciences registered 3.8% and 2.2% year-over-year revenue increases, respectively. Based on this strong performance, management raised its fiscal 2024 guidance. Full-year revenue is now projected to land between $20.1 billion and $20.4 billion, with organic revenue growth of 5.5% to 6.3%, adjusted for forex impacts. Adjusted EPS is projected to range between $12.82 and $13.15, reflecting a growth rate of 6.1% to 7.7%. BDX is slated to report its fiscal Q3 earnings results before the market opens on Thursday, Aug. 1. Analysts tracking Becton Dickinson expect the company's profit to reach $13.04 per share in fiscal 2024, up 6.8% year over year, and rise another 9.1% to $14.22 per share in fiscal 2025. BDX stock has a consensus "Strong Buy" rating overall. Out of the 16 analysts covering the stock, 12 suggest a "Strong Buy," one recommends a "Moderate Buy," and the remaining three give a "Hold" rating. The average analyst price target of $277.57 indicates a potential upside of 20.2% from the current price levels, and the Street-high price target of $315 suggests that BDX stock could rally as much as 36.5%. Healthcare Stock #3: DexCom Valued at a market cap of $44.6 billion, California-based DexCom, Inc. (DXCM) is a trailblazer in continuous glucose monitoring (CGM), revolutionizing diabetes management since 1999. The company specializes in designing and commercializing CGM systems that deliver real-time glucose readings, trend data, and alerts directly to a compact receiver, helping both patients and healthcare providers effectively manage blood glucose levels. Shares of DexCom have shed almost 17% over the past 52 weeks, and are down 10.6% on a YTD basis. Priced at 64.32 times forward earnings and 12.58 times sales, the stock may not be a bargain relative to its industry peers, but DXCM is currently valued much lower than its own five-year average multiples of 133.55x and 16.47x, respectively. On April 25, the company announced its Q1 earnings results, which topped Wall Street's predictions. Total revenue for the quarter skyrocketed 24.2% year over year to $921 million, exceeding forecasts by about $9.8 million. The top-line beat was fueled primarily by booming volume growth and a wave of new customers as real-time CGM gained more adoption. DexCom's adjusted EPS of $0.32 showed an impressive 88.2% annual growth, crushing Wall Street estimates by a solid 18.5% margin. As of March 31, the company boasted a hefty $2.9 billion in cash and marketable securities, with its revolving credit facility untouched. This strong cash cushion provides DexCom with substantial financial and strategic flexibility as it ramps up production and ventures into new markets. During the quarter, Dexcom achieved several milestones, including receiving FDA clearance for Stelo, the first glucose biosensor for type 2 diabetes in the U.S. that doesn't require a prescription. Additionally, the company launched the Direct-to-Watch feature for Dexcom G7 in the UK and Ireland, further expanding its innovative offerings. For fiscal 2024, management projects revenue to range between $4.20 billion and $4.35 billion, reflecting 17% to 21% organic growth. Additionally, the company maintains its targets for a non-GAAP gross profit margin of 63% to 64%, a non-GAAP operating margin of around 20%, and an adjusted EBITDA Margin of about 29%. DexCom is scheduled to announce its fiscal Q2 earnings results after the market closes on Thursday, July 25. Analysts tracking DexCom foresee the company's profit hitting $1.78 per share in fiscal 2024, up 17.1% year over year, and climbing another 24.7% to $2.22 per share in fiscal 2025. Overall, DXCM stock has a consensus "Strong Buy" rating. Out of the 22 analysts covering the stock, 18 suggest a "Strong Buy," one recommends a "Moderate Buy," and the remaining three give a "Hold" rating. The average analyst price target of $148.62 indicates a potential upside of nearly 35% from the current price levels. The Street-high price target of $170 suggests that DXCM could rally 54% from here. On the date of publication, Anushka Mukherji did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.