By Philip van Doorn, MarketWatch
Despite all the good economic news, earnings growth is expected to slow to a crawl this year for large U.S. companies. It may also surprise you that the health-care sector is seen as one of the exceptions.
During the first quarter of 2019, earnings per share declined from a year earlier for six of the S&P 500’s /zigman2/quotes/210599714/realtime SPX +1.36% 11 sectors. These are the five that countered the trend, according to S&P Global Market Intelligence:
|S&P 500 sector||Increase in Q1 EPS|
|Source: S&P Global Market Intelligence|
For the second quarter, consensus estimates among analysts polled by S&P Global Market Intelligence are for the S&P 500’s weighted aggregate EPS to increase 2.2% from a year earlier. Even so, all but these three sectors are expected to show declines:
|S&P 500 sector||Expected increase in Q2 EPS|
|Source: S&P Global Market Intelligence|
The financial sector, led by the big banks, is expected to support its earnings growth by continuing to deploy excess capital by repurchasing shares (which boosts EPS) and raising dividends.
Let’s take a deeper look at health care, which is the only sector beyond financials that is expected to show solid earnings growth over each of the two quarters.
Any company’s earnings can be skewed — or even wiped out — for any quarter or year from accounting-method changes or other one-time events. So rather than look at earnings, here’s a list of the 15 S&P 500 health-care companies expect to showed double-digit increases in sales this earnings season versus a year earlier, based on analysts polled by FactSet:
|Company||Ticker||Estimated sales - current unreported quarter ($mil)||Sales -year-earlier quarter ($mil)||Expected increase in sales||Estimated sales per share - current unreported quarter||Sales per share - year-earlier quarter||Estimated increase in sales per share|
|Cigna Corp.||/zigman2/quotes/208431372/composite CI||$35,039||$11,477||205%||$92.34||$46.78||97%|
|WellCare Health Plans Inc.||/zigman2/quotes/207459018/composite WCG||$6,625||$4,639||43%||$131.67||$102.45||29%|
|CVS Health Corp.||/zigman2/quotes/209664499/composite CVS||$62,669||$46,708||34%||$48.24||$45.88||5%|
|Centene Corp.||/zigman2/quotes/208900023/composite CNC||$18,002||$14,181||27%||$43.55||$35.55||23%|
|Align Technology Inc.||/zigman2/quotes/200300692/composite ALGN||$598||$490||22%||$7.47||$6.02||24%|
|Vertex Pharmaceuticals Inc.||/zigman2/quotes/202259802/composite VRTX||$886||$755||17%||$3.46||$2.92||18%|
|Abiomed Inc.||/zigman2/quotes/202106417/composite ABMD||$211||$180||17%||$4.65||$3.90||19%|
|Biogen Inc.||/zigman2/quotes/201531540/composite BIIB||$3,465||$3,000||16%||$17.87||$14.47||23%|
|Intuitive Surgical Inc.||/zigman2/quotes/204935713/composite ISRG||$1,032||$909||13%||$8.94||$7.67||16%|
|ResMed Inc.||/zigman2/quotes/204675483/composite RMD||$700||$624||12%||$4.88||$4.33||13%|
|Regeneron Pharmaceuticals Inc.||/zigman2/quotes/203149337/composite REGN||$1,803||$1,608||12%||$16.45||$14.05||17%|
|Alexion Pharmaceuticals Inc.||/zigman2/quotes/206262068/composite ALXN||$1,172||$1,047||12%||$5.23||$4.70||11%|
|Humana Inc.||/zigman2/quotes/203095337/composite HUM||$15,915||$14,259||12%||$117.86||$102.90||15%|
|Edwards Lifesciences Corp.||/zigman2/quotes/205745196/composite EW||$1,047||$944||11%||$5.02||$4.41||14%|
You can click the tickers for more about each company.
Cigna /zigman2/quotes/208431372/composite CI +0.02% tops the list because it acquired Express Scripts in December. This acquisition was paid for in part through the issuance of new shares, so you can see that the consensus estimate is for sales per share to increase by roughly half as much as raw sales.
If you are interested in any of these rapid sales growers, your next step is to understand why revenue is expected to increase so much. Was there an acquisition? Do you agree that the target company was a good fit with the acquiring company at that price?
You can see that for CVS /zigman2/quotes/209664499/composite CVS +0.01% , which acquired Aetna in November, the company’s shares were diluted significantly. Second-quarter revenue is expected to increase by 34% from a year earlier, but sales per share are expected to rise by only 5%.