Can Healthways Surprise This Earnings?

Healthways Inc. (NASDAQ:HWAY) is set to report first-quarter 2015 earnings results on Apr 23. Last quarter, the company reported earnings of 25 cents per share, which beat the Zacks Consensus Estimate by 31.6% (6 cents). Let’s see how things are shaping up for this quarter.

Factors at Play

Healthways has a substantial and active pipeline of potential contracts with new and existing customers in both domestic and international markets. Revenues continue to be driven by new business wins, timing of recognizing performance-based fees and expansion of existing contracts.

Furthermore, Healthways sees increased demand for its population health services which is expected to drive margins and revenues going forward.

We believe that collaborations with the likes of MedAssets Inc. (NASDAQ:MDAS), Sul America (SA:SULA11) and EmblemHealth, and expansion of its long-term relationship with CareFirst BlueCross BlueShield (CareFirst) will boost top-line growth.

Nevertheless, the company expects to report loss in the first quarter of 2015 owing to apprehensions of lower revenues. Moreover, the back-end loaded 2015 guidance is a concern.

Earnings Whispers?

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

Zacks ESP: Healthways currently has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 3 cents.

Zacks Rank: Healthways has a Zacks Rank #3 which increases the predictive power of ESP; but when combined with a 0.00% ESP, it makes surprise prediction difficult.

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

Stocks to Consider

Here are a few stocks worth considering that, per our model, have the right combination of elements to post an earnings beat this quarter:

Air Methods Corporation (NASDAQ:AIRM) with an Earnings ESP of +5.88% and a Zacks Rank #1 (Strong Buy).

Biogen Inc. (NASDAQ:BIIB) with an Earnings ESP of +0.51% and a Zacks Rank #1.

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