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3 HMO 2019 Outperformers Likely to Retain Beat Streak in 2020

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The Medical Health Maintenance Organizations (HMOs) continued with its winning streak in the fourth quarter of 2019 after witnessing favorable results in the first three quarters. Several factors, such as strategic mergers and acquisitions, growing revenues on the back of higher membership, demand for value-based care, and medical cost management along with balance sheet strength contributed to the industry’s overall growth, thereby keeping the momentum alive.

The industry players have been taking strategic initiatives like acquisitions and divestitures of non-core operations to enrich their portfolio and streamline their business. All these moves have over time paved a path for earnings growth as well. One of the most recent path-breaking acquisitions was made by Centene Corporation (CNC - Free Report) wherein it acquired WellCare Health Plans, Inc., which strengthens its position as the largest Medicaid managed care organization in the country.

We expect that this buyout trend would continue going forward. Companies are constantly looking for strategic buyouts for portfolio enhancement and consolidation of health care services business.

Demand for Medicare Advantage also saw an upside on the back of aging population. Moreover, these plans aided the top lines of leading industry players, namely UnitedHealth Group Inc. (UNH - Free Report) , Humana Inc. (HUM - Free Report) and Anthem Inc. (ANTM - Free Report) .

Medicaid also has been witnessing solid growth on the back of more and more states opting for Medicaid plans to improve the health outcomes of individuals.

Over the past few years, demand for value-based care has increased manifold, which in turn, led to better health outcomes of communities. These plans are cost-effective for people and can reduce the health system complexity for seniors.

2020 Outlook

As life expectancy continues to rise in the United States and seniors account for a higher percentage of the total population, overall demand for health insurance for seniors will increase in 2020.

The leading players have ample opportunities to grow as the overall healthcare spending in 2020 is likely to increase. Although growth in total spending dipped in 2019 due to enrollment declines, several states adopted budgets with anticipated growth in the current year owing to higher costs for prescription drugs, provider rate increases, and costs for the elderly and people with disabilities.

Per CMS, national health spending is anticipated to grow at 5.5% per year, on average, for the 2018-2027 period. In this context, it should also be noted that CMS projected health spending to grow faster than GDP per year during the 2018-2027 time frame. This provides the medical HMO players with wide opportunities for growth in the future.

Moreover, players are likely to enjoy growth in 2020 through enhanced government programs, retained demand for value-based care, etc.

The players are expected to continue benefiting from stable economy, better customer spending, et al. The companies are also likely to gain traction from innovative products and services, technology and so on.

The healthcare industry will seek technological investment and invention in 2020. The players will gain advantage from various benefits of big data, AI, analytics, informatics, machine learning, which in turn, are expected to lower inefficiencies and wastages that flare up the total medical cost.

The industry currently carries a Zacks Industry Rank #51, which places it in the top 20% of 255 Zacks industries.

The Medical HMO industry has grown 1.5% in a year’s time, underperforming the S&P 500 composite’s increase of 14.6%.



Stocks Expected to Sustain the Winning Streak

Now let us take a look at the stocks that are likely to retain the bull run in 2020.

Here we pick top three healthcare bets that can show a great trend momentum with an encouraging share price movement. The stocks have performed well over the last many quarters and are likely to carry on with the purple patch. The stocks carry an impressive Zacks Rank #1 (Strong Buy) or 2 (Buy) and has impressive surprise history. You can see the complete list of today’s Zacks #1 Rank stocks here.

Select Medical Holdings Corporation (SEM - Free Report) runs critical illness recovery hospitals, rehabilitation hospitals, outpatient rehabilitation clinics and occupational health centers in the United States. The company holds a Zacks Rank #2. The company managed to beat on earnings in three of the trailing four quarters, missing the same in the other one. The average trailing four-quarter surprise beat is 24.8%. In a year’s time, the stock has soared nearly 84.6%, outperforming its industry’s growth of 1.5%.



The Joint Corp. (JYNT - Free Report) develops, owns, operates, supports, and manages chiropractic clinics. It came up with average trailing four-quarter positive surprise of 175.8%. It sports a Zacks Rank of 1. The stock has gained 47% in a year’s time, outperforming its industry’s growth of 1.5%.



UnitedHealth Group Incorporated (UNH - Free Report) operates as a diversified health care company in the United States. The company has a Zacks Rank of 2 and company managed to come up with a trailing four-quarter surprise of 3.65%, on average. In a year’s time, the stock has gained 5.6%, outperforming the industry’s growth of 1.5%.


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