admin July 9, 2019


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












SPX, -0.48%










 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.












CI, -1.05%









$35,039 $11,477 205% $92.34 $46.78 97%
WellCare Health Plans Inc.












WCG, -0.47%









$6,625 $4,639 43% $131.67 $102.45 29%
CVS Health Corp.












CVS, -0.47%









$62,669 $46,708 34% $48.24 $45.88 5%
Centene Corp.












CNC, -0.43%









$18,002 $14,181 27% $43.55 $35.55 23%
Align Technology Inc.












ALGN, -0.38%









$598 $490 22% $7.47 $6.02 24%
Vertex Pharmaceuticals Inc.












VRTX, -0.89%









$886 $755 17% $3.46 $2.92 18%
Abiomed Inc.












ABMD, -1.41%









$211 $180 17% $4.65 $3.90 19%
Biogen Inc.












BIIB, -1.46%









$3,465 $3,000 16% $17.87 $14.47 23%
Intuitive Surgical Inc.












ISRG, -0.76%









$1,032 $909 13% $8.94 $7.67 16%
ResMed Inc.












RMD, -0.42%









$700 $624 12% $4.88 $4.33 13%
Regeneron Pharmaceuticals Inc.












REGN, -1.36%









$1,803 $1,608 12% $16.45 $14.05 17%
Alexion Pharmaceuticals Inc.












ALXN, -3.84%









$1,172 $1,047 12% $5.23 $4.70 11%
Humana Inc.












HUM, -0.19%









$15,915 $14,259 12% $117.86 $102.90 15%
Edwards Lifesciences Corp.












EW, -0.82%









$1,047 $944 11% $5.02 $4.41 14%
Celgene Corp.












CELG, -0.45%









$4,241 $3,825 11% $6.01 $5.22 15%
Source: FactSet

You can click the tickers for more about each company.

Cigna












CI, -1.05%










 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












CVS, -0.47%










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%.

Sell-side analysts clearly favor CVS, with two-thirds rating the shares a “buy” or the equivalent. There are no “sell” ratings. The stock price is down 15% this year through July 5.

Read: Walgreens and CVS stocks look like tempting values, but investors may be swallowing a bitter pill

Analysts’ favorites

Here are the 10 S&P 500 health-care stocks with majority “buy” or equivalent ratings that analysts expect to rise the most over the next 12 months:

Company Ticker Share ‘buy’ ratings Share neutral ratings Share ‘sell’ ratings Closing price – July 5 Consensus price target Implied 12-month upside potential
Centene Corp.












CNC, -0.43%









88% 12% 0% $51.48 $74.00 44%
Cigna Corp.












CI, -1.05%









84% 16% 0% $163.44 $214.96 32%
Abiomed Inc.












ABMD, -1.41%









100% 0% 0% $261.47 $336.88 29%
Align Technology Inc.












ALGN, -0.38%









78% 22% 0% $273.29 $340.19 24%
Alexion Pharmaceuticals Inc.












ALXN, -3.84%









79% 21% 0% $130.30 $161.28 24%
Anthem Inc.












ANTM, +0.24%









83% 17% 0% $284.06 $335.45 18%
UnitedHealth Group Inc.












UNH, +0.34%









96% 4% 0% $246.99 $285.54 16%
Agilent Technologies Inc.












A, -2.52%









93% 7% 0% $75.75 $83.73 11%
Boston Scientific Corp.












BSX, -0.02%









92% 4% 4% $42.62 $46.05 8%
Merck & Co. Inc.












MRK, -1.82%









88% 12% 0% $85.60 $90.69 6%
Source: FactSet
Sector performance

In recent years, the health-care sector has underperformed the S&P 500. However health care has been winner over much longer periods. This table is sorted by 15-year total returns through July 5:

S&P 500 sector Total return – 3 years Total return – 5 years Total return – 10 years Total return – 15 years Total return – 20 years
Information Technology 107% 135% 472% 435% 192%
Consumer Discretionary 62% 92% 539% 387% 351%
Utilities 27% 70% 227% 353% 305%
Health Care 37% 64% 338% 311% 319%
Consumer Staples 18% 51% 242% 295% 346%
Real Estate 24% 63% 428% 292% N/A
Industrials 43% 54% 339% 252% 269%
Materials 38% 30% 204% 220% 258%
Communications Services 4% 32% 168% 194% 19%
Energy 1% -26% 67% 162% 238%
Financials 64% 66% 266% 69% 101%
S&P 500 52% 67% 311% 263% 216%
Dow Jones Industrial Average












DJIA, -0.43%









62% 78% 319% 283% 288%
Source: FactSet

Here’s a 20-year total-return chart for the Health Care Select Sector SPDR ETF












XLV, -0.75%










which tracks the S&P 500 Health Care sector, against the SPDR S&P 500 ETF












SPY, -0.55%










: 



Don’t miss: These European companies benefit from high health-care prices in the U.S.

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