Will CNC Q3 Earnings Come In Better Than ESRX On Oct 24?

Third-quarter earnings have already crossed the halfway mark. As of Oct 18, 52 S&P 500 companies reported results with strong earnings numbers.

Per the latest Earnings Trends, third-quarter 2017 results of the 52 S&P 500 members that have reported results, account for 16.7% of the index’s total market capitalization. Total earnings for these companies are up 13.3% year over year on 6.9% rise in revenues, with 73.1% beating earnings per share estimates.

As of Oct 18, 5.4% of the total Medical sector, one of the seven sectors in the S&P 500 group, reported third-quarter results. The beat ratio is strong with 66.7% companies surpassing bottom-line expectations.

Sector Trends

The sector has been in the limelight ever since Donald Trump became the President. Trump’s intention to repeal and replace the Health Care Reform Act, popularly known as Obamacare, has resulted in an uncertain future for the whole sector. As a result, the medical stocks continue to be in focus.

The U.S healthcare industry substantially benefits from the strong membership base supported by medicare expansion under Obamacare. Aggressive inorganic strategies have helped the players achieve fast-paced growth. In addition, new product launches, improving service, expansion into ancillary businesses and expense management strategies are expected to add to the top line.

However, medical stocks face threats like the rising level of bad debt, demand for increasing investments in technological innovation, integration cost related to acquisitions and high interest expenses on debt-funded acquisitions. These are likely to put pressure on the bottom line.

Stocks to Compare

Let’s take a sneak peek into two Medical sector stocks that are set to report their quarterly earnings on Oct 24.

We expect the third-quarter earnings for Express Scripts Holding Company (NASDAQ:ESRX) to show a decline in revenues at the pharmacy benefit manager (PBM) segment, which is one of the major revenue components. The Zacks Consensus Estimate for PBM revenues stands at $23.226 billion, reflecting a decline of 4.8% from the year-ago quarter.

Moreover, the Zacks Consensus Estimate for PBM product network is pegged at $11,069 million, down 8.9% year over year. The Zacks Consensus Estimate for PBM service revenues is $365 million, down 3.2% year over year. Lackluster performance in these segments is likely to mar Express Scripts’ revenues in the third quarter.

Per the company’s guidance for the third quarter, its total adjusted claims are expected in the range of $340-$350 million. Notably, the Zacks Consensus Estimate for total claims stands at $243 million, down 2.1% sequentially.

Adjusted earnings per diluted share for the third quarter are estimated in the range of $1.88-$1.92, representing growth of 8% to 10% on a year-over-year basis. This excludes any contribution from Anthem and other transitioning clients.

Express Scripts announced that its biggest customer, leading health insurer Anthem Inc. (NYSE:ANTM) , is not likely to extend its pharmacy-benefits management agreement, which is slated for expiration by the end of 2019. Per management, Express Scripts might lose almost 50% of its revenues related to the Anthem contract in the third quarter itself.

Express Scripts has the right combination of two main ingredients — a positive Earnings ESP and Zacks Rank #2 (Buy). Notably, the Earnings ESP for Express Scripts is +0.13%.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Express Scripts Holding Company Price and EPS Surprise

We expect Centene Corporation’s (NYSE:CNC) third-quarter earnings to be aided by solid Medicaid expansion.

For the past few quarters, Centene has been witnessing consistent growth in its membership that has been driving the overall top line. The company expects this uptrend to continue in the third quarter as well and impact revenues positively. The Zacks Consensus Estimate for total membership is currently pegged at 12.1 billion, reflecting 6.1% year-over-year growth.

The major contributor to this rising membership is Centene’s continuously growing Medicaid base. Medicaid expansion one of the provision of Affordable Care Act, has benefitted Centene. This was driven by Centene’s intention to continue on exchanges while other health insurers like Humana Inc (NYSE:HUM) and many more are exiting it.

The third quarter is also likely to witness further expansion of its Medicaid business. In the third quarter, the company successfully reprocured a new statewide Medicaid contract in Georgia and Nevada. The Zacks Consensus Estimate for Medicaid membership presently stands at 5.8 billion, reflecting year-over-year growth of 3.6%.

Moreover, Centene has been taking several cost saving initiatives that are reducing the level of expenses. The margin is likely to be aided by lower expenses in the third quarter. The Zacks Consensus Estimate for total general and administrative expenses ratio is currently pegged at 0.09 compared with 9.23 in the second quarter of 2017.

Centene also has the right combination of two main ingredients — a positive Earnings ESP and Zacks Rank #1 (Strong Buy) to strengthen the possibility for a beat. Notably, the Earnings ESP for Centene is +2.45%.

Centene Corporation Price and EPS Surprise

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