Humana (HUM) Q1 Earnings May Disappoint: Stock To Suffer?

Humana Inc. (NYSE:HUM) is set to report first-quarter 2016 results on May 4, before the market opens. Last quarter, the company posted a negative earnings surprise of 0.68%. Let’s see how things are shaping up for this announcement.

Factors to be Considered this Quarter

Humana has likely witnessed an increase in operating expenses owing to higher benefit expenses as well as depreciation and amortization expenses.

Moreover, the company is expected to have experienced weakness in Group Medicare Advantage business in the first quarter. This is likely to adversely impact earnings and result in a fall in net membership.

However, Humana’s Medicare Part D Prescription Drug Plan (PDP) – part of its Medicare business – has likely displayed net membership growth in the to-be-reported quarter.

Notably, Humana is set to be acquired by Aetna Inc. (NYSE:AET) to form a combined company by the second half of 2016.

With respect to the surprise trend, the company delivered positive surprises in two of the last four quarters, with a negative beat of 0.11%.

Earnings Whispers

Our proven model does not conclusively show that Humana is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Humana has an Earnings ESP of +0.55%. This is because the Most Accurate estimate is pegged at $1.82, while the Zacks Consensus Estimate stands at $1.81.

Zacks Rank: Humana carries a Zacks Rank #4 (Sell).

We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Currently, the stock is trading at $177.07. We expect the release to lead to stock movement.

Stocks to Consider

Here are some companies from the medical sector that you may want to consider as these have the right combination of elements to post an earnings beat this quarter:

Aceto Corp. (NASDAQ:ACET) has an Earnings ESP of +5.26% and a Zacks Rank #3. The company is set to report first-quarter earnings on May 5.

Becton, Dickinson and Company (NYSE:BDX) has an Earnings ESP of +1.99% and a Zacks Rank #2. The company is slated to report first-quarter earnings on May 5.