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WCG Vs. MOH: Which Health Insurance Stock is Better Placed

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At this time when the fears relating to trade war are flaring up, posing risk and uncertainty to a wide range of sectors and imparting volatility to the indexes, the U.S. health insurance industry is in safe waters.

It is primarily domestic operations and relatively inelastic demand that have rescued the health insurance industry. Alongside factors such as changing demography, increasing employment, which fuels demand for employee health insurance, bodes well for the industry’s revenue growth.

Also, factors such as increasing contribution from complementary businesses, product modifications, improved service, better claims handling, medical cost management, technological investment and upgrade, mergers and acquisitions plus healthy balance sheets have long sustained the mojo for health insurers, and there is no reason for a blip in the trend. The overall bullish scenario reinforces our sentiment in the growth cadence of the sector over the long run.

The industry has rallied 12.25% year to date compared with the 1.7% increase clocked by the S&P 500 index.

The buoyancy in the health insurance space is further confirmed by its  Zacks Industry Rank within the top 13% (33 of the 255 plus groups). In such a situation, it is a wise idea to invest in health insurance companies.

Some stocks promising sturdy growth in this flourishing industry are Humana Inc. (HUM - Free Report) , Magellan Health, Inc. (MGLN - Free Report) , Molina Healthcare, Inc. (MOH - Free Report)   and WellCare Health Plans, Inc. (WCG - Free Report) .

Each of these stocks carry a Zacks Rank #2 (Buy) except Molina which sports a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

Let’s indulge in a comparative analysis of two health insurers — WellCare and Humana — to decide which is a better stock.

While Molina Healthcare has a market capitalization of $6.4 billion, the same for Wellcare is $11.2 billion. While Molina Healthcare has gained 30% year to date Wellcare rose by 26%.

Let's scan certain other parameters to find out which company is better positioned.

Earnings Expectations

Earnings growth along with stock price gains is often an indication of a company’s strong prospects.

Molina’s current-quarter earnings are projected to grow 11,200% compared with 18.7% rise for Anthem. Looking at the full-year 2018 picture, Molina’s earnings are estimated at 725% growth while the same for Wellcare is expected to increase 20.5%.

Thus, Molina has an edge over Wellcare in terms of quarterly and annual earnings growth projections.

Earnings Surprise History

A stock’s earnings surprise history helps investors get an idea about its performance in the previous quarters.

Both companies boast a decent earnings surprise history. Wellcare surpassed the Zacks Consensus Estimate in each of the last four reported quarters, while Molina beat in three.

However, Molina visibly has a vantage point over Wellcare in terms of its four-quarter average positive earnings surprise, which reads 112.27%. Wellcare’s average beat is 51.7%.

Return on Equity

Return on equity is a profitability measure, which reflects profits generated using shareholders’ equity.

Hence, higher ROE reflects the company’s efficiency in using shareholders fund and is preferred by all classes of investors.

The ROE of 20.1% for Molina Healthcare compares favorably with Wellcare’s ROE of 17.8%. However, both companies beat the industry ROE of 16.6%.

Valuation

The price to earnings ratio to growth (PEG) ratio measures the price of a stock, the earnings generated per share (EPS), and the company's expected growth. A lower number or multiple is preferred to a higher one.

The trailing 12-month PEG ratio multiple for Molina and Wellcare is 1.34 and 1.6 respectively, while that of industry is 1.35.

This clearly shows that Molina is more valued than Wellcare

Bottom Line

Our comparative assessment shows that Molina is much better placed than Wellcare on all fronts.

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