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 Quick QuoteCI - Free Report) , Universal Health Services, Inc. (UHS Quick QuoteUHS - Free Report) , HCA Healthcare, Inc. (HCA Quick QuoteHCA - Free Report) and Tenet Healthcare Corporation (THC Quick QuoteTHC - Free Report) .

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.

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%.