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July 13, 2019, 7:26 a.m. EDT

Health care is one of the stock market’s healthiest sectors right now

Most S&P 500 sectors are expected to show earnings declines; health care is an exception

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By Philip van Doorn, MarketWatch


Bloomberg
Cigna’s quarterly sales per share are expected nearly to double, even with significant dilution from issuing shares to help pay for its acquisition of Express Scripts.

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 -0.39%  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
Health Care 9.8%
Real Estate 7.4%
Financials 6.2%
Industrials 5.9%
Information Technology 4.0%
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
Financials 4.3%
Health Care 2.0%
Industrials 0.2%
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.

Read: Bank stocks are back in vogue and the rally isn’t over, analysts say

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.

Sales growth

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%
Celgene Corp. /zigman2/quotes/207213661/composite CELG $4,241 $3,825 11% $6.01 $5.22 15%
Source: FactSet

You can click the tickers for more about each company.

Cigna /zigman2/quotes/208431372/composite CI +1.28%  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 -0.51% , 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%.

/zigman2/quotes/210599714/realtime
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Volume: 1.99B
Oct. 18, 2019 5:08p
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/zigman2/quotes/208431372/composite
US : U.S.: NYSE
$ 166.88
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0.02%
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$ 274.45
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N/A
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/zigman2/quotes/209664499/composite
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$ 66.16
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3.02%
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/zigman2/quotes/208900023/composite
US : U.S.: NYSE
$ 46.88
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15.41
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N/A
Market Cap
$19.39 billion
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/zigman2/quotes/200300692/composite
US : U.S.: Nasdaq
$ 213.88
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Oct. 18, 2019 4:00p
P/E Ratio
41.45
Dividend Yield
N/A
Market Cap
$17.08 billion
Rev. per Employee
$168,653
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/zigman2/quotes/202259802/composite
US : U.S.: Nasdaq
$ 176.23
-1.49 -0.84%
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P/E Ratio
20.66
Dividend Yield
N/A
Market Cap
$45.30 billion
Rev. per Employee
$1.22M
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/zigman2/quotes/202106417/composite
US : U.S.: Nasdaq
$ 175.30
-1.22 -0.69%
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P/E Ratio
31.36
Dividend Yield
N/A
Market Cap
$7.95 billion
Rev. per Employee
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/zigman2/quotes/201531540/composite
US : U.S.: Nasdaq
$ 220.06
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N/A
Market Cap
$40.59 billion
Rev. per Employee
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/zigman2/quotes/204935713/composite
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$ 566.25
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Oct. 18, 2019 4:00p
P/E Ratio
51.43
Dividend Yield
N/A
Market Cap
$65.26 billion
Rev. per Employee
$673,819
loading...
/zigman2/quotes/204675483/composite
US : U.S.: NYSE
$ 131.21
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Oct. 18, 2019 6:30p
P/E Ratio
46.93
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1.19%
Market Cap
$18.86 billion
Rev. per Employee
$413,240
loading...
/zigman2/quotes/203149337/composite
US : U.S.: Nasdaq
$ 300.19
-1.38 -0.46%
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P/E Ratio
16.69
Dividend Yield
N/A
Market Cap
$32.99 billion
Rev. per Employee
$906,865
loading...
/zigman2/quotes/206262068/composite
US : U.S.: Nasdaq
$ 98.41
-1.58 -1.58%
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Oct. 18, 2019 4:00p
P/E Ratio
16.63
Dividend Yield
N/A
Market Cap
$22.07 billion
Rev. per Employee
$1.56M
loading...
/zigman2/quotes/203095337/composite
US : U.S.: NYSE
$ 289.26
+3.76 +1.32%
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P/E Ratio
15.79
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0.76%
Market Cap
$39.08 billion
Rev. per Employee
$1.31M
loading...
/zigman2/quotes/205745196/composite
US : U.S.: NYSE
$ 227.46
-0.34 -0.15%
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Oct. 18, 2019 6:30p
P/E Ratio
66.70
Dividend Yield
N/A
Market Cap
$47.30 billion
Rev. per Employee
$290,844
loading...
/zigman2/quotes/207213661/composite
US : U.S.: Nasdaq
$ 102.95
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P/E Ratio
14.08
Dividend Yield
N/A
Market Cap
$72.96 billion
Rev. per Employee
$1.73M
loading...
/zigman2/quotes/208431372/composite
US : U.S.: NYSE
$ 166.88
+2.11 +1.28%
Volume: 2.03M
Oct. 18, 2019 6:30p
P/E Ratio
15.24
Dividend Yield
0.02%
Market Cap
$63.02 billion
Rev. per Employee
$658,753
loading...
/zigman2/quotes/209664499/composite
US : U.S.: NYSE
$ 66.16
-0.34 -0.51%
Volume: 6.25M
Oct. 18, 2019 6:30p
P/E Ratio
18.53
Dividend Yield
3.02%
Market Cap
$86.04 billion
Rev. per Employee
$659,586
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