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Will Higher Admissions Aid HCA Healthcare (HCA) Q3 Earnings?

HCA Healthcare, Inc. HCA is scheduled to report third-quarter 2017 results on Oct 31, before the opening bell.

The company has an impressive surprise history. It surpassed estimates in two of the last four quarters, with an average positive surprise of 3.6%.

Q3 Expectations

We expect earnings to reflect the prevailing industry-wide softness in volumes. Factors such as payor initiatives to move volumes away from hospitals, rising deductibles and prevalence of high deductible health plans, and increased proportion of hospital care to be paid by consumers are driving away volumes. The same is likely to be seen in the quarter.

Patient admissions will, however, be sustained on the back of organic and inorganic growth measures. The Zacks Consensus Estimate for total admissions, one of the key revenue drivers, (represents the total number of patients admitted to the company’s hospitals and is a general measure of inpatient volume) is 483,000, which reflects year-over-year growth of 2.8%.

Shares bought back by the company in the third quarter will cushion the bottom line. The company has not paid regular dividend since its IPO in 2011. It prefers share buyback over dividend payment for allocating capital and will maintain this policy.

Preliminary Results

Recently, the company announced preliminary financial and operating results for the to-be-reported quarter. It reported revenues of approximately $10.7 billion, up 4.1% year over year and adjusted EBITDA of approximately $1.8 billion, down 9.2% year over year. Earnings per share of $1.21 per share reflected a decline 25% year over year.  The results bore the impact of recent hurricanes, which caused loss of $140 million in some of the company’s major markets.

Same facility admissions in the third quarter increased 0.6%, while same facility equivalent admissions increased 0.3% year over year. Same facility emergency room visits increased 0.3% year over year. The Zacks Consensus Estimate for same facility equivalent admissions points to an increase of 0.5%.

Here’s what our quantitative model predicts:

Our proven model does not conclusively show that HCA Healthcare is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below.

Zacks ESP: HCA Healthcare has an Earnings ESP of -14.89%. This is because the Most Accurate estimate of $1.22 per share is lower than the Zacks Consensus Estimate of $1.43.  You can uncover the best stocks to buy or sell before they’re reported with our">Earnings ESP Filter.

Zacks Rank: HCA Healthcare carries a Zacks Rank #5 (Strong Sell). We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies from the health care sector that you may want to consider as these have the right combination of elements to beat on earnings in the third quarter:

Aetna, Inc. AET is set to report earnings results on Oct 31 with an Earnings ESP of +2.01% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Teladoc Inc. TDOC has an Earnings ESP of +15.65% and a Zacks Rank #3. The company is set to report financial results on Nov 1.

Humana, Inc. HUM has an Earnings ESP of +0.43% and a Zacks Rank of 3. The company is set to report earnings on Nov 8.

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