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3 Health Insurers Poised to Beat Earnings Estimates in Q2

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After bearing the brunt of the COVID-19 pandemic, the health insurance industry is now rebounding on the back of higher premiums, Medicare and Medicaid business, rising enrollment, value-based care, etc.

Increasing population of baby boomers and better health outcomes through usage of analytics, AI and other advanced technologies bode well for the industry.

Other factors leading the industry are increasing contribution from complementary businesses, product modifications, expansion of international operations, better claims handling, cost transparency, technological investment and upgrade, mergers and acquisitions, and healthy balance sheets.

In the second quarter, insurers are likely to have benefited from higher premiums covered under government-sponsored plans, namely Medicare Advantage and Medicaid. However, commercial health insurance plans are likely to have remained subdued due to stiff competition and more number of employers shifting to Administrative services only (ASO) products, which carry soft profit margins.

Year-over-year growth in terms of revenues will be positive. The health insurance players’ bullish 2021 guidance also reflects their growth potential. Many health insurers are also catering to rising demand for telehealth services.

The recent win of the Affordable Care Act, which was challenged in 2017 as being unconstitutional, poise the industry players well for growth. Insurers will likely witness better membership as ACA makes it necessary for all Americans to buy health coverage.

In the June quarter, utilization in the health insurance space is likely to have resumed normalcy.

In December, Fitch Ratings revised its outlook for the health insurance segment from negative to stable. Fitch does not expect medical loss ratios to decline again to the level witnessed in second-quarter 2020.

However, decreased interest rates will hurt investment income in the to-be-reported quarter because of low investment yields.

Players continue to build digital platforms to offer their customers digital healthcare benefits. Companies are paying adequate attention to vulnerable members, especially under Medicare and Medicaid coverage by expanding access to personalized digital care platforms, which dispense up-to-date information on prevention, coverage and care. This, in turn, might have escalated the operating expenses of companies in the quarter to be reported.

Year to date, the health insurance industry has gained 16.8% compared with the Zacks S&P composite's increase of 15.8%.

Zacks Investment Research
Zacks Investment Research

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Selecting the Winners

This is the right time for you to pick some health insurance stocks that are well-poised to beat on earnings in their upcoming releases.

Choosing stocks with earnings beat potential might be difficult unless one knows the process of shortlisting. One way to do the job is by opting for stocks with the perfect combination of a top Zacks Rank — Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — and a positive Earnings ESP.

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

Earnings ESP is our proprietary methodology to identify stocks that have high chances of delivering a positive surprise in their upcoming earnings announcement. It shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. Our research shows that for stocks with this ideal combination, chances of beating estimates are as high as 70%.

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

3 Major Health Insurers

Here are three major health insurance stocks that have the right mix of elements to pull off positive earnings surprises this reporting cycle:

Anthem Inc. ANTM has an Earnings ESP of +1.13% and is Zacks #3 Ranked, currently. The company’s earnings surpassed estimates in all the preceding four quarters, the average being 2.47%. The consensus mark for the second-quarter revenues indicates an upside of 13.5% from the year-ago quarter's reported figure..

Humana Inc.HUM currently has a Zacks Rank of 3 and an Earnings ESP of +11.96%. Its earnings surpassed estimates in each of the previous four quarters, the average being 9.42%. The consensus mark for the second-quarter revenues indicates an upside of 7.1% from the year-ago quarter's reported figure.

The Joint Corp. JYNT has an Earnings ESP of +150.00% and a Zacks Rank #3, currently. Its earnings surpassed estimates in three of the last four quarters (missing the mark in one), the average beat being 199.17%. The consensus estimate for the second-quarter earnings and revenues implies a respective rise of 100% and 37.3% from the corresponsing year-ago quarter's reported numbers.

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