Health Care Ticks Up Ahead of Earnings: A Sector Divided by Performance and Strategy

The healthcare sector has seen cautious optimism in recent weeks, with stock prices inching upward as investors brace for a wave of Q1 2025 earnings reports. This period of heightened anticipation reflects both the sector’s resilience post-pandemic and its growing divergence in performance, driven by shifts in demand, regulatory pressures, and innovation cycles. Below, we dissect the key results and outlooks for major healthcare companies reporting in April and May 2025, highlighting winners, losers, and the strategic moves shaping investor sentiment.

April’s Strong Performers: Scale and Innovation Pay Off

UnitedHealth Group (UNH): Dominance in Medicare Advantage

UnitedHealth’s Q1 results underscored its position as a bellwether for managed care growth. With $111.5 billion in revenue (+11.7% YoY) and $5.86 billion in net income, the company’s Optum segment—its healthcare services and technology arm—delivered double-digit revenue growth. Medicare Advantage enrollment gains, driven by government subsidies and consumer demand for comprehensive coverage, remain a key tailwind.

The company’s EPS of $7.29 (+5.5% YoY), however, lagged revenue growth, signaling margin pressures from rising costs. Yet investors appear unfazed, with UNH’s stock up 8% year-to-date—a reflection of its scale and ability to navigate regulatory shifts.

Johnson & Johnson (JNJ): Pharma Strength Masks MedTech Headwinds

J&J’s results highlighted a sector-wide tension: pharmaceutical innovation outpacing slower-moving medical device segments. While Pharma revenue rose 6% YoY, driven by immunology and oncology drugs like TREMFYA and ERLEADA, the MedTech division struggled, with spine and orthopedic product declines offset by cardiovascular and wound care gains.

The company’s net income dipped 2.1% to $5.76 billion, but its reaffirmed 2025 guidance—excluding volatile pandemic-era vaccine sales—suggests confidence in its diversified pipeline. Investors will scrutinize its $21.6 billion in total revenue to assess whether JNJ’s cost-cutting and R&D focus can sustain growth in a high-inflation environment.

Abbott Laboratories (ABT): Diabetes and Cardiovascular Tech Drive Growth

Abbott’s Q1 results were a study in precision. The company’s $10.9 billion in revenue (+6.1% YoY) and $2.22 billion in net income were fueled by its FreeStyle Libre glucose monitoring system and cardiovascular devices. The Libre’s dominance in the diabetes market—now covering 64% of the U.S. Type 1 diabetes population—has made it a critical growth lever.

However, Abbott’s flat EPS ($1.03) compared to prior-year results suggests margin pressures from pricing headwinds and manufacturing costs. The stock’s muted reaction (up 1% post-earnings) reflects skepticism about its ability to sustain this momentum without new product launches.

Weaknesses and Warnings: The Cost of Legacy Businesses

Biomerica (BMRA): Struggling with Post-Pandemic Hangover

Biomerica’s Q1 results were a stark reminder of the perils of overexposure to pandemic-era demand. The company reported a $2.6 million net loss, with revenue collapsing 12.5% YoY to $1.7 million as legacy COVID testing revenue dried up. Its pivot to gastrointestinal diagnostics remains in early stages, with pipeline products years from commercialization.

BMRA’s $0.23 EPS loss and bleak outlook have sent its stock plummeting 30% year-to-date. This underscores a broader sector risk: companies reliant on one-time opportunities (e.g., testing, vaccines) may face existential challenges as demand normalizes.

HCA Healthcare (HCA): Operational Challenges Emerge

HCA’s Q1 results revealed cracks in its growth narrative. While revenue rose 5.6% YoY to an estimated $18.31 billion, rising expenses (+5.8% YoY) and lower hospital occupancy (72.7% vs. 75.2% in 2024) signaled operational strain. The company’s focus on equivalent admissions growth (+3.4% YoY) and higher revenue per admission couldn’t offset 8% inflation in supply costs, raising concerns about profitability.

HCA’s stock dipped 3% post-earnings, as investors questioned whether its $40 billion valuation—14x 2025E EBITDA—is justified amid rising cost pressures.

May’s Spotlight: Behavioral Health and Real Estate

Acadia Healthcare (ACHC): Betting on Behavioral Health Demand

Acadia’s May 12 earnings release will test investor faith in its bet on mental health services. The company, which operates 262 behavioral healthcare facilities across 39 U.S. states, reported $774.2 million in revenue in Q4 2024 (+4.2% YoY), driven by same-facility revenue growth.

Yet its stock has slumped 56.9% over six months, reflecting skepticism about its ability to sustain growth amid rising regulatory scrutiny and staffing shortages. The Q1 results will need to show margin expansion or new contract wins to reverse this trend.

Healthcare Realty Trust (HR): REIT Resilience in a Tight Market

Healthcare Realty Trust, a healthcare-focused REIT, will report Q1 results on May 1. The company’s portfolio of 650 outpatient facilities—often adjacent to major hospitals—has insulated it from broader retail REIT declines.

Investors will watch for occupancy rates and rental growth at its properties, which account for 38.4 million square feet of space. With healthcare real estate demand tied to aging populations and outpatient care trends, HR’s performance could signal broader sector health.

Conclusion: A Sector of Winners and Losers, but Innovation Remains Key

The healthcare sector’s mixed Q1 results reveal a market divided between scale-driven giants and niche players struggling with legacy businesses. Companies like UNH and Abbott, leveraging Medicare Advantage growth and durable medical technologies, are outperforming peers burdened by pandemic-era reliance (BMRA) or operational inefficiencies (HCA).

Investors should prioritize firms with diversified revenue streams, strong pipeline visibility, and cost discipline. For instance, J&J’s R&D-heavy pharma segment and Abbott’s diabetes tech leadership suggest innovation remains the best hedge against margin pressures. Meanwhile, the May earnings of Acadia and Healthcare Realty will test whether behavioral health and real estate can deliver growth in a slowing economy.

The sector’s 5.2% average return year-to-date (vs. S&P 500’s 7.8%) hints at underperformance, but select opportunities exist. As we enter Q2, the focus shifts to execution: Can healthcare companies balance growth with profitability, or will margin pressures force consolidation? The answers will determine which stocks outpace the market—and which become cautionary tales.