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Are you taking a cautionary stance during earnings season? We researched companies that have had strong upward momentum, and that are expected to report earnings next week.

We began by screening the healthcare industry for stocks that are rallying above their 20-day, 50-day, and 200-day moving averages, indicating that these stocks have had strong upward momentum.

Do you think this momentum will continue? We did a deeper analysis on the financials to find an answer. We found 3 stocks that had declining top-line growth. These were companies with negative trends in revenue relative to accounts receivable, with slower growth in revenue year-over-year than growth in accounts receivable, as well as receivables comprising a larger portion of current assets.

Receivables represent the portion of revenue not yet collected, so the smaller the portion of revenue and current assets, the better.

A Closer Look

We took a closer look at West Pharmaceutical Services (NYSE:WST). The company's stock trades around $59.65 versus its 52-week high of $59.83, up 49% in the past 1-year. It trades with a P/E multiple of 22 times versus 3M Company (NYSE:MMM), which trades with a multiple of 15 times, and Rexam Plc (OTCQX:REXMD), which trades with a multiple of 20 times.

The company has continued to return cash to its shareholders in the form of dividend payments. On October 1st, 2012, West Pharmaceuticals increased its dividend from $0.18 to $0.19. The stock yields 1.27%.

As of September 30th, 2012, the company has cash and short term investment of $165 million, and long-term debt of $362 million. Also, the company has a credit agreement of $300 million, which expires in April 2017. The borrowing capacity can be increased to $350.0 million upon approval by the banks. As of September 30th, 2012, there was $100 million outstanding under the credit facility.

Does the dividend of 1.27%, and a strong balance sheet give you an incentive to invest in this stock?

The List

For an interactive version of this chart, click on the image below. Analyst ratings sourced from Zacks Investment Research.

Do you think declining top-line growth will end the rally in these stocks? Use the list below as a starting point for your analysis:

1. Lifepoint Hospitals Inc. (NASDAQ:LPNT): Operates general acute care hospitals in non-urban communities in the United States.

  • Market cap at $2.15B, most recent closing price at $43.48.
  • Revenue grew by 10.96% during the most recent quarter ($820.2M vs. $739.2M y/y). Accounts receivable grew by 28.97% during the same time period ($512.9M vs. $397.7M y/y). Receivables, as a percentage of current assets, increased from 46.02% to 54.88% during the most recent quarter (comparing 3 months ending 2012-09-30 to 3 months ending 2011-09-30).
  • The stock is currently trading 4% above its 20-day moving average, 12% above its 50-day moving average, and 13% above its 200-day moving average.
  • The company is expected to report earnings on February 15th, 2013.

2. Mine Safety Appliances Co. (NYSE:MSA): Develops, manufactures, and supplies health and safety products used by workers in the fire service, homeland security, construction, and other industries, as well as the military.

  • Market cap at $1.69B, most recent closing price at $45.84.
  • Revenue grew by -4.62% during the most recent quarter ($286.74M vs. $300.64M y/y). Accounts receivable grew by 7.1% during the same time period ($223.2M vs. $208.41M y/y). Receivables, as a percentage of current assets, increased from 43.32% to 46.02% during the most recent quarter (comparing 3 months ending 2012-09-30 to 3 months ending 2011-09-30).
  • The stock is currently trading 1% above its 20-day moving average, 8% above its 50-day moving average, and 18% above its 200-day moving average.
  • The company is expected to report earnings on February 12th, 2013.

3. West Pharmaceutical Services, Inc. : Manufactures and sells components and systems for injectable drug delivery and plastic packaging, and delivery system components for the pharmaceutical, healthcare, and consumer products industries.

  • Market cap at $2.04B, most recent closing price at $59.82.
  • Revenue grew by 3.47% during the most recent quarter ($303.8M vs. $293.6M y/y). Accounts receivable grew by 19.46% during the same time period ($182.9M vs. $153.1M y/y). Receivables, as a percentage of current assets, increased from 30.41% to 32.82% during the most recent quarter (comparing 3 months ending 2012-09-30 to 3 months ending 2011-09-30).
  • The stock is currently trading 4% above its 20-day moving average, 7% above its 50-day moving average, and 18% above its 200-day moving average.
  • The company is expected to report earnings on February 11th, 2013.

*Accounting data sourced from Google Finance, all other data sourced from Finviz.

Source: 3 Rallying Healthcare Stocks Reporting This Week With Troubling Sales Trends