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Healthcare Q3 Earnings to Watch on Oct 31: ANTM, MOH, ESRX

In the to-be reported quarter, the healthcare industry (here we focus on health insurers) is expected to maintain its solid performance exhibited in the first six months of this year.

An increase in membership and premium ought to be the main catalysts for top-line growth in the third quarter. Medical cost management, better claims handling, cost-saving initiatives and a decrease in tax rate courtesy of the tax reform have contributed to the lead players’ margins.

While last year saw the individual exchange market suffering losses due to high claims and low premium, the situation reversed in 2018 with the same business profits for insurance companies.

Factors to Influence Third-Quarter Earnings

Third-quarter earnings for the industry should be mostly stable with no incidence of flu season (which increases claims). We expect the industry players to benefit from higher enrollments in Medicare and Medicaid plans. The individual market is likely reap in profits during the to-be-reported quarter.

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The Medicaid line of business must have seen growth from Medicaid expansion, outsourced by the government to private players. Medicare is a high-growth area for insurers witnessing huge demand for Medicaid insurance from the surging baby boomer population.

The commercial risk market remains highly competitive in both small as well as large group segments. Insurers should therefore see limited growth from this business line.

The bottom line is anticipated to generate increased returns from a lower tax incidence on the back of a tax rate cut by virtue of the 2017 Tax Reform. Going by the Economic Advisers report, some of the largest health insurers expect earnings (net income) to increase 8.7-19.6% in 2018 from the 2017 range with a significant portion of the increase drawn from the tax reform.

However, health players estimate an escalation in operating cost from the return of the health insurance tax and higher investments in innovation plus business development.

A strong capital position must have driven to share repurchase, which will lend an extra edge to earnings.

Below we mention an array of stocks that beat earnings estimates in the first half of 2018 and are expected to retain the winning streak for the third quarter as well.

Let see what’s in store for the below-mentioned three healthcare companies:

Anthem Inc.’s ANTM top line have been rising over the past few quarters, mainly driven by its Government Business as well as Commercial & Specialty Business segments. The momentum is likely to continue in the third quarter as well as the Zacks Consensus Estimate for revenues from Government business is expected to be nearly $12.5 billion, up 3.8% year over year and the same for the Commercial business is projected to be $10.6 billion, up 6% year over year.

Moreover, the Zacks Consensus Estimate for revenues in the third quarter of 2018 stands at $22.9 billion, up 3.6% year over year.

In the to-be reported quarter, the company’s local group insured medical cost trend will likely be 6%, plus or minus 50 basis points.

Anthem carries a Zacks Rank #2 (Buy) and has an Earnings ESP of +1.69%, which makes us confident of a likely positive surprise. (Read more: Anthem Q3 Earnings: What's in Store for the Stock?)

You can see the complete list of today’s Zacks #1 Rank stocks here.

The company beat earnings estimates in each the last four reported quarters at an average of 6.65%. The same is depicted in the chart below:

Anthem, Inc. Price and EPS Surprise

Anthem, Inc. Price and EPS Surprise | Anthem, Inc. Quote

The Zacks Consensus Estimate for Molina Healthcare, Inc. ’s MOH quarterly earnings is pegged at $1.65, up 46% year over year.

Molina Healthcare has possibly taken more initiatives to optimize its capital structure as well as boost its business portfolio. As a result, operational efficiency might have improved. In the third quarter, the Medicaid product line has also likely seen better results. Medical costs are estimated to have stabilized during the period.

Per Molina Healthcare, costs are expected to rise in the second half of the year due to higher administrative costs on timing of technology, marketing and transition expenses in places like Florida and New Mexico.

However, the company’s revenues are anticipated to suffer due to lower Marketplace revenue because of declining membership. The Zacks Consensus Estimate for the same is pegged at $4.7 billion, down 6.6% year over year.

Molina Healthcare’s Zacks Rank of 1 (Strong Buy) and has an Earnings ESP of +3.76%, makes us confident of a likely positive surprise. (Read more: Molina Healthcare's Q3 Earnings: Is a Beat in Store?).

The company beat earnings estimates in each the last four reported quarters at an average of 164.17%. The same is depicted in the chart below:

Molina Healthcare, Inc Price and EPS Surprise

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

Express Scripts Holding Company ESRX adjusted earnings per share for the third quarter are estimated in the range of $2.40-$2.45, reflecting growth of 26-29% from a year ago. The company expects total adjusted claims for the third quarter in the band of 330-340 million, of which 275-285 million is attributable to the core business.
 
It is encouraging to note that in the last reported quarter, management announced that the company expects to make approximately $140 million of investments toward enterprise value initiatives for 2018. Notably, this is expected to contribute $65-$75 million of savings in 2018.  This is likely to result in cumulative savings of nearly $1.2 billion by 2021.

The company carries a Zacks Rank #3 (Hold). But its Earnings ESP of 0.00 makes our surprise prediction inconclusive. (Read more: What's in Store for Express Scripts' Q3 Earnings?)

The company beat earnings estimates in each the last four reported quarters at an average of 1.21%. The same is depicted in the chart below:

Express Scripts Holding Company Price and EPS Surprise

Express Scripts Holding Company Price and EPS Surprise | Express Scripts Holding Company Quote

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