Which Healthcare Stocks Have the Strongest Earnings Trends?

Earnings trends are extremely important when evaluating stocks. At Wall St. Cheat Sheet, we view increasing earnings quarter-over-quarter as a simple way to gauge whether costs and the business model are stable. Then we like to analyze whether the company is outperforming peers in the sector. This is what we call the “E-Squared” investment analysis (‘E = Earnings Are Increasing Quarter-Over-Quarter’ + ‘E = Excellent Relative Performance Versus Peers and Sector’).

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Here’s your Cheat Sheet to how the top 5 healthcare stocks rank via earnings trends:

Unitedhealth Group, Inc. (NYSE:UNH): Current Price $54.56

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 81,190 87,140 94,160 101,860 110,620
Diluted EPS ($) 2.40 3.24 4.10 4.73 5.28

Unitedhealth has grown both revenue and earnings impressively over the last five years.

Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012
Revenue ($) in millions 25,920 27,280 27,260 27,300 28,770
Diluted EPS ($) 1.18 1.31 1.27 1.50 1.20

Unfortunately, quarterly earnings have zigzagged. Revenue remained flat across the period from March 2012 through September 2012, with only a marginal improvement in the latest quarter. Moreover, EPS declined quarter-over-quarter…

Aetna Inc. (NYSE:AET): Current Price $46.93

Fiscal Year 2007 2008 2009 2010 2011
Revenue ($) in millions 27,600 30,950 34,760 34,250 33,780
Diluted EPS ($) 3.47 2.83 2.84 4.18 5.22

Aetna’s annual earnings growth has outperformed revenue growth since 2008. EPS grew 84% during this period, while revenue increased only 9%.

Let’s take a look at the quarterly data:

Quarter Sep. 30, 2011 Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012
Revenue ($) in millions 8,475 8,572 8,916 8,835 8,916
Diluted EPS ($) 1.30 1.03 1.43 1.32 1.47

We find that in terms of the quarterly numbers, revenue has remained essentially flat. Earnings have grown somewhat, but they have been inconsistent…

WellPoint Inc. (NYSE:WLP): Current Price $62.75

Fiscal Year 2007 2008 2009 2010 2011
Revenue ($) in millions 61,170 61,250 64,940 58,700 60,710
Diluted EPS ($) 5.56 4.76 9.88 6.94 7.25

Wellpoint revenues have remained essentially flat since 2007, though earning per share has grown, albeit jerkily.

Quarter Sep. 30, 2011 Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012
Revenue ($) in millions 15,400 15,320 15,420 15,410 15,350
Diluted EPS ($) 1.90 1.02 2.53 1.94 2.15

Flat revenues here too, and volatile earnings. Perhaps we’ll find better candidates among its peers…

Humana Inc. (NYSE:HUM): Current Price $71.40

Fiscal Year 2007 2008 2009 2010 2011
Revenue ($) in millions 25,290 28,950 30,740 33,600 36,830
Diluted EPS ($) 4.91 3.83 6.15 6.47 8.46

Here’s a nice set of numbers with revenue growing steadily year-over-year, every year since 2007. With the exception of 2008, EPS has also shown a rising trend.

Quarter Sep. 30, 2011 Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012
Revenue ($) in millions 9,301 9,056 10,220 9,699 9,651
Diluted EPS ($) 2.67 1.22 1.49 2.16 2.62

We find that earnings have grown nicely over the last four quarters, though growth in revenue could have been better. But we’re not complaining since earnings have increased four quarters in a row…

CIGNA (NYSE:CI): Current Price $56.33

Fiscal Year 2007 2008 2009 2010 2011
Revenue ($) in millions 17,620 19,100 18,410 21,250 22,000
Diluted EPS ($) 3.84 1.05 4.73 4.89 4.84

We see steady growth in revenue, though annual earnings growth seems to have tapered off a bit after 2009. Could things be better on the quarterly front?

Quarter Sep. 30, 2011 Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012
Revenue ($) in millions 5,610 5,470 6,788 7,457 7,358
Diluted EPS ($) 0.67 1.23 1.28 1.31 1.61

Certainly, things look promising here, as CIGNA has grown its EPS every quarter over the last five quarters. Revenue has grown over 31% during this period.

Conclusion

In conclusion, we have to make a choice between Humana and Cigna — although both are watch list worthy. We’ll go with Humana in view of its better performance regarding the longer term numbers.

“E = Earnings Are Increasing Quarter-Over-Quarter” is a core component of our successful CHEAT SHEET investing framework. Don’t waste another minute – click here to discover our CHEAT SHEET stock picks now!