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4 Health Insurers Likely to Maintain Winning Streak in 2024
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The U.S. health insurance industry, referred to as Health Maintenance Organization (HMO), benefited from contract wins, an expanding membership base and an aging U.S. population this year. However, Medicaid eligibility redeterminations, continued staffing shortage and inflationary headwinds put pressure on the performance of the industry players.
The Zacks Medical-HMO industry has gained 14.2% in the past six months compared with the S&P 500’s rally of 6.3%. The Medical sector has declined 4.6% in the same time frame.
The HMO industry participants are direct beneficiaries of growing health insurance premiums. Apart from affordability, health insurers infuse attractive features within their plans to expand their reach across U.S. communities. The lucrativeness of the plans often fetches federal or state contracts for industry players, thereby boosting membership growth.
Image Source: Zacks Investment Research
The industry participants resorted to mergers and acquisitions (M&As) in 2023 to upgrade their capabilities and achieve diversification benefits, which are necessary to gain a competitive edge over industry peers. They also welcomed digitization with open arms and made investments in technology to include telehealth services.
However, the announcement made by a UnitedHealth Group (UNH - Free Report) official this June about the resumption of elective procedures acted as a headwind to the price performance of health insurers in the first half of 2023. Soon after the announcement, shares of major health insurers like UNH, Humana Inc. (HUM - Free Report) , Centene Corporation (CNC - Free Report) and Molina Healthcare (MOH - Free Report) witnessed a decline.
Though the industry challenges persist, stocks such as UNH, HUM, CNC and MOH seem to have recovered in the second half of 2023.
Outline for 2024
A growing customer base, attributable to lucrative plan features, is expected to drive premiums in 2024, the most significant contributor to a health insurer’s top line. An aging U.S. population is likely to sustain the solid demand for Medicare plans (meant for 65 years and above) in the days ahead.
Owing to the convenience and affordability that telehealth services provide, the related platforms are expected to fetch a steady flow of revenues next year.
An increase in elective surgeries, which had been delayed due to the pandemic, will increase medical costs for health insurers in 2024. Additionally, the HMO industry has been suffering from an acute shortage of nurses and other medical personnel for quite some time. This can dampen a hospital’s ability to deliver quality care services to health insurers’ plan members and adversely impact their customer base in the days ahead.
The commencement of the Medicaid redetermination process from Apr 1, 2023 has been putting pressure on commercial enrollment growth and the trend is likely to continue in 2024 as well. Molina Healthcare expects to lose around 60% of the 800,000 Medicaid members it gained since the beginning of the pandemic. Nevertheless, a well-diversified portfolio should enable health insurers to cope with the loss of membership.
UnitedHealth Group: Headquartered in Minnesota, this health insurer is likely to benefit from solid contributions from its UnitedHealthcare and Optum businesses in 2024. The UnitedHealthcare unit devises lucrative Medicare and Medicaid plans and upgrades them from time to time. Management estimates overall revenues to be within $400-$403 billion in 2024. A strong financial position provides a cushion for UNH to pursue an active M&A strategy.
UnitedHealth Group’s earnings surpassed estimates in each of the last four quarters, the average surprise being 2.74%. The Zacks Consensus Estimate for UNH’s 2024 earnings is pegged at $27.88 per share, which indicates an improvement of 11.8% from the 2023 estimate. UNH currently carries a Zacks Rank #3. Its shares have gained 12.2% in the past six months.
Humana: Based in Kentucky, Humana gains on the back of an expanding customer base and the resultant benefit of higher premiums. An aging U.S. population is likely to sustain the solid demand for Humana's Medicare plans. In 2024, Humana aims to introduce its Medicare Advantage plans across 39 U.S. counties. In order to cater to the aging population effectively, HUM has the CenterWell brand in place.
The Zacks Consensus Estimate for Humana’s 2024 earnings is pegged at $31.42 per share, indicating a 11.1% improvement from the 2023 estimate. HUM’s earnings surpassed estimates in each of the last four quarters, the average being 5.47%. HUM currently carries a Zacks Rank #3. Its shares have gained 3% in the past six months.
Centene: Based in Missouri, Centene is aided by strength in its Medicaid and Medicare businesses that may fetch contract wins and lead to membership growth in the year ahead. U.S. states like Louisiana, Indiana and Missouri, among others, awarded Centene Medicaid contracts in 2023. CNC follows an inorganic growth route in the form of acquisitions and provider collaborations, which, in turn, bolster its capabilities, diversify its portfolio and solidify its nationwide presence.
The Zacks Consensus Estimate for Centene’s 2024 earnings is pegged at $6.70 per share, which suggests a 0.6% rise from the 2023 estimate. CNC’s earnings outpaced estimates in two of the last four quarters and missed the mark twice, the average being 5.62%. CNC currently carries a Zacks Rank #2. Its shares have gained 13.4% in the past six months.
Molina Healthcare: This California-based health insurer gains from an expanding customer base and higher premium revenues, which it earns through distributing Medicare and Medicaid plans across different U.S. communities. These plans fetch numerous contract wins and are likely to contribute to premium growth. A series of acquisitions undertaken over the years has upgraded its capabilities and diversified revenue streams.
Molina Healthcare’s earnings surpassed estimates in each of the last four quarters, the average surprise being 7.46%. The Zacks Consensus Estimate for MOH’s 2024 earnings is pegged at $23.76 per share, which indicates an improvement of 14.1% from the 2023 estimate. MOH currently carries a Zacks Rank #3. Its shares have gained 31.3% in the past six months.
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4 Health Insurers Likely to Maintain Winning Streak in 2024
The U.S. health insurance industry, referred to as Health Maintenance Organization (HMO), benefited from contract wins, an expanding membership base and an aging U.S. population this year. However, Medicaid eligibility redeterminations, continued staffing shortage and inflationary headwinds put pressure on the performance of the industry players.
The Zacks Medical-HMO industry has gained 14.2% in the past six months compared with the S&P 500’s rally of 6.3%. The Medical sector has declined 4.6% in the same time frame.
The HMO industry participants are direct beneficiaries of growing health insurance premiums. Apart from affordability, health insurers infuse attractive features within their plans to expand their reach across U.S. communities. The lucrativeness of the plans often fetches federal or state contracts for industry players, thereby boosting membership growth.
Image Source: Zacks Investment Research
The industry participants resorted to mergers and acquisitions (M&As) in 2023 to upgrade their capabilities and achieve diversification benefits, which are necessary to gain a competitive edge over industry peers. They also welcomed digitization with open arms and made investments in technology to include telehealth services.
However, the announcement made by a UnitedHealth Group (UNH - Free Report) official this June about the resumption of elective procedures acted as a headwind to the price performance of health insurers in the first half of 2023. Soon after the announcement, shares of major health insurers like UNH, Humana Inc. (HUM - Free Report) , Centene Corporation (CNC - Free Report) and Molina Healthcare (MOH - Free Report) witnessed a decline.
Though the industry challenges persist, stocks such as UNH, HUM, CNC and MOH seem to have recovered in the second half of 2023.
Outline for 2024
A growing customer base, attributable to lucrative plan features, is expected to drive premiums in 2024, the most significant contributor to a health insurer’s top line. An aging U.S. population is likely to sustain the solid demand for Medicare plans (meant for 65 years and above) in the days ahead.
Owing to the convenience and affordability that telehealth services provide, the related platforms are expected to fetch a steady flow of revenues next year.
An increase in elective surgeries, which had been delayed due to the pandemic, will increase medical costs for health insurers in 2024. Additionally, the HMO industry has been suffering from an acute shortage of nurses and other medical personnel for quite some time. This can dampen a hospital’s ability to deliver quality care services to health insurers’ plan members and adversely impact their customer base in the days ahead.
The commencement of the Medicaid redetermination process from Apr 1, 2023 has been putting pressure on commercial enrollment growth and the trend is likely to continue in 2024 as well. Molina Healthcare expects to lose around 60% of the 800,000 Medicaid members it gained since the beginning of the pandemic. Nevertheless, a well-diversified portfolio should enable health insurers to cope with the loss of membership.
4 Stocks to Watch
Here, we have picked four HMO stocks that carry either a Zacks Rank #2 (Buy) or a Zacks Rank #3 (Hold) and have the potential to retain their purple patch going forward. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
UnitedHealth Group: Headquartered in Minnesota, this health insurer is likely to benefit from solid contributions from its UnitedHealthcare and Optum businesses in 2024. The UnitedHealthcare unit devises lucrative Medicare and Medicaid plans and upgrades them from time to time. Management estimates overall revenues to be within $400-$403 billion in 2024. A strong financial position provides a cushion for UNH to pursue an active M&A strategy.
UnitedHealth Group’s earnings surpassed estimates in each of the last four quarters, the average surprise being 2.74%. The Zacks Consensus Estimate for UNH’s 2024 earnings is pegged at $27.88 per share, which indicates an improvement of 11.8% from the 2023 estimate. UNH currently carries a Zacks Rank #3. Its shares have gained 12.2% in the past six months.
Humana: Based in Kentucky, Humana gains on the back of an expanding customer base and the resultant benefit of higher premiums. An aging U.S. population is likely to sustain the solid demand for Humana's Medicare plans. In 2024, Humana aims to introduce its Medicare Advantage plans across 39 U.S. counties. In order to cater to the aging population effectively, HUM has the CenterWell brand in place.
The Zacks Consensus Estimate for Humana’s 2024 earnings is pegged at $31.42 per share, indicating a 11.1% improvement from the 2023 estimate. HUM’s earnings surpassed estimates in each of the last four quarters, the average being 5.47%. HUM currently carries a Zacks Rank #3. Its shares have gained 3% in the past six months.
Centene: Based in Missouri, Centene is aided by strength in its Medicaid and Medicare businesses that may fetch contract wins and lead to membership growth in the year ahead. U.S. states like Louisiana, Indiana and Missouri, among others, awarded Centene Medicaid contracts in 2023. CNC follows an inorganic growth route in the form of acquisitions and provider collaborations, which, in turn, bolster its capabilities, diversify its portfolio and solidify its nationwide presence.
The Zacks Consensus Estimate for Centene’s 2024 earnings is pegged at $6.70 per share, which suggests a 0.6% rise from the 2023 estimate. CNC’s earnings outpaced estimates in two of the last four quarters and missed the mark twice, the average being 5.62%. CNC currently carries a Zacks Rank #2. Its shares have gained 13.4% in the past six months.
Molina Healthcare: This California-based health insurer gains from an expanding customer base and higher premium revenues, which it earns through distributing Medicare and Medicaid plans across different U.S. communities. These plans fetch numerous contract wins and are likely to contribute to premium growth. A series of acquisitions undertaken over the years has upgraded its capabilities and diversified revenue streams.
Molina Healthcare’s earnings surpassed estimates in each of the last four quarters, the average surprise being 7.46%. The Zacks Consensus Estimate for MOH’s 2024 earnings is pegged at $23.76 per share, which indicates an improvement of 14.1% from the 2023 estimate. MOH currently carries a Zacks Rank #3. Its shares have gained 31.3% in the past six months.