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3 Hospital Stocks That Won't Make You Feel Better in Q1

Zacks Equity Research

The first-quarter earnings season has kick-started on an optimistic note, with expectations of year-over-year growth. While it is still very early in the reporting cycle, total Q1 earnings are expected to be up 7.6% on revenue growth of 6.3%. This compares favorably with earnings growth of 7.4% and revenue growth of 4.7% in the fourth quarter of 2016.

When it comes to Hospital companies, investors are a bit fuzzy as this corner is among the better performers in the past few quarters. Per our Earnings Preview Report, the aggregate dollar amount of earnings increase for the Medical sector is on the lower end of the16 Zacks sectors, with Medical earnings expected to shrink 0.6% year over year versus growth of 4.5% y/y in the sequential quarter. Margins are also expected to fall 0.7% year over year.

The doldrums over the future of Hospital stocks are due to the furor over the final shape of Obamacare or the Affordable Care Act (ACA). Last month, the lukewarm response to its replacement, the American Health Care Act (AHCA) – has forced Republicans to propose amendments for setting aside funds for covering a portion of costs alongside insurers. However a decision on this matter is scheduled only at the end of the month.

Road Ahead for Hospital Stocks

The foremost question that arises now is whether hospital stocks stand to gain or lose with regard to the AHCA conundrum. The medical device fraternity was happy with the original Trump action plan which had promised cancellation of major healthcare taxes including the two signature taxes of Obamacare, the unpopular Cadillac tax (40% excise tax on high-cost healthcare plans) and the controversial 2.3% MedTech tax.

Also, if the proposed amendment for AHCA is not implemented, around 6–10 million Americans are estimated to lose coverage under the new healthcare act. This would invariably result in shrinkage in the customer base for hospital companies as a significant chunk of the population would lose their healthcare coverage.

Hospital Stocks to Avoid This Earnings Season

In such a mixed space we rely on our proprietary Zack Rank and Earnings ESP to help us avoid Hospital stocks this earnings season. Our research shows that stocks with a Zacks Rank of #4 (Sell) or 5 (Strong Sell) along with an unfavorable Earnings ESP are best avoided.

Using our Earnings ESP system can greatly increase your odds of sieving out these potential losers before they report. Excluding the three stocks mentioned below from your portfolio can actually increase returns. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Acadia Healthcare Company, Inc. ACHC: Headquartered in Franklin, TN, Acadia Healthcare Company provides behavioral health care services in the U.S. and the United Kingdom. You can see the complete list of today’s Zacks #1 Rank stocks here.

Zacks Rank #4

Earnings ESP: -2.17%

Expected Earnings Release Date: Apr 25

Mednax, Inc. MD: Based in Sunrise, FL, Mednax is a domestic health solutions partner comprising the nation's leading providers of physician services. The company provides services through a network of more than 3,675 physicians in 50 states and Puerto Rico.

Zacks Rank #4

Earnings ESP: 0.00%

Expected Earnings Release Date: Apr 27

Tenet Healthcare Corporation THC: Headquartered in Dallas, TX, Tenet Healthcare is an investor-owned health care services company, which owns and operates general hospitals and related health care facilities for urban and rural communities in numerous states, and has offices in California and Florida.

Zacks Rank #5

Earnings ESP: -3.85%

Expected Earnings Release Date: May 1

Looking for other options in the health care market? Check out our recent podcast for more information on an often-overlooked segment of the health care world that could be worth a closer look now:

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Tenet Healthcare Corporation (THC): Free Stock Analysis Report
Mednax, Inc (MD): Free Stock Analysis Report
Acadia Healthcare Company, Inc. (ACHC): Free Stock Analysis Report
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