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We expect HCA Holdings Inc. HCA to beat earnings expectations when it reports fourth-quarter and full-year 2016 results, on Jan 31, before the opening bell.

Why a Likely Positive Surprise?

Our proven model shows that HCA Holdings has the right combination of the two key ingredients to beat on earnings.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +1.12%. This is a major indicator of a likely positive earnings surprise for the company. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: HCA Holdings carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) and 3 have a significantly higher chance of beating estimates.

The combination of HCA Holdings’ favorable Zacks Rank and positive ESP makes us confident of an earnings beat on Jan 31. Notably, the Zacks Consensus Estimate of $1.78 reflects a year-over-year increase of 5.33%.

Factors to Influence Q4 Results

HCA Holdings recently gave a glimpse of its 2016 preliminary results. The company expects income before taxes and adjusted EBITDA to be approximately $4.5 billion and $8.2 billion, both up 13% and 3.5% year over year, respectively.

The company’s guidance reflects its strong business in 2016 and share price gain of a whopping 47.1% compared with a meager gain of 1.82% logged by the Zacks categorized Medical-Hospital industry.

While the company gave a strong outlook for its top and bottom lines, details on admission for the fourth quarter were not so appealing. The company expects same facility admissions for the fourth quarter of 2016 to increase approximately 1.6%. Same facility equivalent admissions, a measure of total inpatient and outpatient admissions, are expected to increase approximately 1.5% which is lower than an increase of 2.9% in the prior-year quarter.

Also, same facility emergency room visits are expected to increase approximately 1.6% compared with an increase of 3.6% reported in the year-ago quarter.

We expect to see pressure on earnings from an overall moderation for inpatient services, competition from more freestanding emergency rooms (ER) and some Medicare Advantage plans that classified ER patients as observation.

We, however, believe that earnings will see an upside from its vast scale and diversified business mix that provides it with a competitive advantage in negotiating contracts and managing reimbursement uncertainty. Though HCA Holdings is likely to experience increased margin pressure due to slower reimbursement growth, it is better equipped to offset these pressures on the back of its scale and business diversity, resulting in less earnings and cash flow volatility relative to its peers.