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4 Health Insurance Stocks Poised for Earnings Beat in Q3

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 The health insurance industry delivered a stellar operating performance in the first six months of 2018 with most players reporting an improving top and the bottom line.

An increase in membership and premium ought to be the main catalysts for top-line growth, leading to gains in the first two quarters of 2018. Medical cost management, better claims handling, cost-saving initiatives and a decrease in tax rate courtesy of the tax reform have contributed to the lead players’ margins.

While last year saw the individual exchange market suffering losses due to high claims and low premium, the situation reversed in 2018 with the same business profits for insurance companies.

Per a report by the Council of Economic Advisers released in March 2018, health insurers’ profitability in the individual market has risen owing to substantial premium rises, government premium tax credits that pay for those premium increases and the large government funded Medicaid expansion.The industry remains quite stable and has been able to provide some handsome returns compared with the other sectors which swing wildly at the mere mention of trade wars and interest rate changes plus other macro economic developments.

 

In the first six months through Jun 30, 2018, the health insurance industry has increased 10% compared with the Zacks S&P 500 Composite’s rise of 2.13%. This is almost five times the broader market’s return.

Factors to Influence Third-Quarter Earnings

Third-quarter earnings for the industry should be mostly stable with no incidence of flu season (which increases claims). We expect the industry players to benefit from higher enrollments in the Medicare and Medicaid plans. The individual market is likely reap in profits during the to-be-reported quarter. Medicaid line of business might also notice growth from Medicaid expansion, outsourced by the government to private players. Medicare is a high-growth area for insurers witnessing huge demand for Medicaid insurance from the surging baby boomer population.

The commercial risk market remains highly competitive in both small as well as large group segments. The insurers should therefore see a limited growth from this business line.

The bottom line is anticipated to generate fat returns from a lower tax incidence on the back of a tax rate cut by virtue of the 2017 Tax Reform. Going by the Economic Advisers report, some of the largest health insurers expect earnings (net income) to increase 8.7-19.6% in 2018 from the 2017 range with a significant portion of the increase drawn from the tax reform.
However, health players estimate an escalation in operating cost from the return of the health insurance tax and higher investments in innovation plus business development.

A strong capital position must have driven to share repurchase, which will lend an extra edge to earnings.

Below we mention an array of stocks that beat earnings estimates in the first half of 2018 and are expected to retain the winning streak  for the third quarter as well.

All these best bets have a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP.

4 Best Health Choices

Cigna Corp. (CI - Free Report) has an Earnings ESP of +0.83% and a Zacks Rank of 1. The stock has witnessed an upward revision in the Zacks Consensus Estimate for the current year by 4.8% over the past 60 days.  

You can see the complete list of today’s Zacks #1 Rank stocks here.

Year to date, the stock has inched up 1.6% compared with the industry’s rally of 20.5%.

Health insurance leader UnitedHealth Group Inc. (UNH - Free Report) has an Earnings ESP of +0.35% and a Zacks Rank #2. The stock has witnessed an upward revision in the Zacks Consensus Estimate for 2018 by 0.8% over the past 90 days.

Year to date, the stock has gained 20%, in line with its industry’s rise.
Humana Inc. (HUM - Free Report) has an Earnings ESP of +2.15% and a Zacks Rank #3.

The stock has witnessed an upward revision in the Zacks Consensus Estimate for the current year by 1.3% over the past 60 days.
Year to date, the stock has surged 35%, outperforming the growth of the industry it belongs to.

Anthem, Inc. (ANTM - Free Report) has an Earnings ESP of +0.15% and a Zacks Rank of 2. The stock has witnessed an upward revision in the Zacks Consensus Estimate for the ongoing year by 0.6% over the past 90 days.

Year to date, the stock has jumped 20.7%, meeting the industry’s increase.

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