Back to top

Image: Bigstock

Zacks Industry Outlook Highlights: Joint, Anthem, Centene and UnitedHealth

Read MoreHide Full Article

For Immediate Release

Chicago, IL – August 8, 2019 – Today, Zacks Equity Research discusses Health Insurance, including The Joint Corp. (JYNT - Free Report) , Anthem Inc. , Centene Corp. (CNC - Free Report) and UnitedHealth Group, Inc. (UNH - Free Report) .

Industry: Health Insurance

Link: https://www.zacks.com/commentary/460473/outlook-for-health-insurance-industry-looks-sanguine

The Health Maintenance Organization (HMO) industry comprises entities (either private or public) that take care of the basic and supplemental health services of its subscribers. Companies in this space primarily assume the risks involved and assign premiums for health and medical insurance policies. Industry participants also provide administrative and managed-care services for self-funded insurance.

Services are generally provided by a network of approved care providers (called in-network), which include primary care physicians, clinical facilities, hospitals and specialists. However, out-of-network exceptions are made in emergencies or when medically necessary. Health insurance plans can be availed by ways such as private purchase, social insurance or social welfare programs such as Medicare and Medicaid, funded by the government.

Let us take a look at the industry’s three major themes:

•    As life expectancy continues to increase in the United States and seniors account for a higher percentage of the total U.S. population, overall demand for health insurance for seniors will increase. According to the 2018 U.S. Census, between 2010 and 2030, the number of individuals aged 65+ is projected to nearly double from 39 million to 73 million, a growth rate nearly 5 times faster than the 17% increase expected for the total population. The census estimates this group to grow from 13% to 21% by 2030 — one of the fastest growing within U.S. population.

•    The HMO industry is rapidly consolidating with mergers and acquisitions. The most common takeovers in recent years have been in the nature of horizontal expansion in the areas of Medicare and Medicaid as the players seek to garner a greater share of the attractive MA market. Lately, however, the companies have shown interest in expanding vertically and add capabilities to its supply chain through mergers and acquisitions. The mega mergers of Aetna with CVS Health Corp. (CVS) and Cigna Corp. (CI) with Express Scripts are the best examples of inter industry deals that led to the union of a health insurer and a pharmacy benefit manager.

•    The industry has also witnessed development in ancillary business to diversify revenue sources in the wake of tough regulations laid (via the ACA) on health insurance business.  These businesses, mostly in the form of health care services, are growing rapidly, opening up new avenues of growth and forming an increased proportion of the industry’s total revenues. Health services business is an important growth area for HMOs as these provide unregulated cash flows and enable players to become comprehensive healthcare providers. Ample opportunities of growth exist in the health service business and continued investments are being made in this area. A poster child for the same is UnitedHealth’s Optum, which provides a range of healthcare-related services.

Zacks Industry Rank Indicates Bright Prospects

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates upbeat prospects in the near term. The Zacks Medical-HMO, which is an 11-stock group within the broader Zacks Medical sector, currently carries a Zacks Industry Rank #25, which places it at the top 10% of 255 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. In a year’s time, the industry’s earnings estimate for the current year has gone up by 4.6%.

Industry Return Underperformed S&P 500  and its Sector

The Zacks Medical-HMO industry has underperformed both the Zacks S&P 500 composite and its own sector over the past year.

We see that the stocks in this industry have collectively lost 5.7% over the past year, while the Zacks S&P 500 composite and Zacks Medical Sector have rallied 1.8% and 11.4%, respectively.

HMO Industry’s Current Valuation

On the basis of forward 12-month price-to-earnings (P/E) ratio, which is commonly used for valuing HMO stocks, the industry is currently trading at 14.53X compared with the S&P 500’s 16.39X and the sector’s 19.32X.

Over the past five years, the industry has traded as high as 20.53X, as low as 14.27X and at a median of 16.21X.

Bottom Line

Despite earnings outperformance by the companies, the industry has underperformed in a year’s time due to various regulatory issues and the uncertainty in policy changes if new a president gets elected. These may have kept investors away from the industry.  

Shrugging aside the intermittent political disruptions, players in the industry will continue to ride on technological investment and upgrade, application of blockchain technology, growth of new business units, international expansion, better claims handling, medical cost management, mergers and acquisitions, and a healthy balance sheet.

HMO Stocks to Buy Now

Four stocks in the Zacks Medical-HMO space currently carry a Zacks Rank #2 (Buy).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Joint Corp.:  The stock has surpassed earnings estimates in two of the last four quarters with an average positive surprise of 190%.

Anthem Inc.: The stock has surpassed earnings estimates in each of the trailing four quarters with an average positive surprise of 4.57%. The Zacks Consensus Estimate for this Minnetonka, MI-based company’s 2019 earnings has gone up 0.3% over the past 30 days.

Centene Corp.: The Zacks Consensus Estimate for 2019 bottom line of this Louisville, KY-based company has been raised 0.7% over the past 30 days. The stock has surpassed earnings estimates in each of the last four quarters with an average positive surprise of 4.56%.

UnitedHealth Group, Inc.: The Zacks Consensus Estimate for this Minnetonka, MI-based company’s 2019 earnings has gone up 0.6% over the past 30 days. The stock has surpassed earnings estimates in each of the trailing four quarters with an average positive surprise of 3.37%.

This Could Be the Fastest Way to Grow Wealth in 2019

Research indicates one sector is poised to deliver a crop of the best-performing stocks you'll find anywhere in the market. Breaking news in this space frequently creates quick double- and triple-digit profit opportunities.

These companies are changing the world – and owning their stocks could transform your portfolio in 2019 and beyond. Recent trades from this sector have generated +98%+119% and +164% gains in as little as 1 month.

Click here to see these breakthrough stocks now >>

 

Join us on Facebook: http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts

Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.

Media Contact

Zacks Investment Research

800-767-3771 ext. 9339

support@zacks.com

http://www.zacks.com

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


UnitedHealth Group Incorporated (UNH) - free report >>

Centene Corporation (CNC) - free report >>

The Joint Corp. (JYNT) - free report >>

Published in