The health insurance industry is well-poised for growth on the back of an aging population and a boom in Medicaid and Medicare businesses. The leading players are aiming for progress owing to sufficient capital and the rising enrollment.
In fact, last month, Fitch Ratings reviewed US health insurance companies, which account for nearly 80% of the country’s population. Medical benefits of this segment are managed by private health insurers where in 83% of the companies was affirmed with a Stable Outlook.
Factors Likely to Impact Insurers in 2H
Rising Enrollment: The whole of United States is grappling with financial woes, emanating from the COVID-19 outbreak. At a time when unemployment levels are alarmingly high, Medicaid business is likely to witness increased membership. This is because Medicaid health plans generally provide coverage to low-income groups across the United States.
For example, Humana Inc.'s HUM management expects full-year individual Medicare Advantage membership to be around 300,000-350,000 members, higher than the previous range of 270,000-330,000 members. Other companies, such as Centene Corporation CNC is also well-poised for growth on the back of membership.
Strong Growth Backed by Retiring Baby Boomers: Medicare and Medicaid — the government sponsored programs for the retiring population and the underprivileged — have been in great demand among a huge population of baby boomers touching the retirement age. Moreover, the expansion of Medicaid led to augmented enrollment in this plan. Both schemes saw growing participation of private health insurers as states reach out to them to effectively manage the costs of these plans.
Rise of Telehealth Services: Due to observance of stringent social-distancing measures, patients are left with remote healthcare as the only viable option to seek medical assistance. This, in turn, shoots up demand for tele medical expertise and boosts the telehealth market eventually, which remained out of focus for long. For instance, Anthem Inc. ANTM witnessed a rise in usage of its Telehealth and virtual care services. Per its last earnings call, it registered more than 170,000 downloads of the app and a 250% surge in virtual care engagements. Given the current scenario, the company expects this business to continue performing well. The telehealth industry is gaining a substantial traction from government aids, which reflects that it is here to stay.
Financial Flexibility: Most leading health insurance companies boast impressive balance sheets, which will likely help it sustain operations despite the coronavirus woes.
What Will Keep the Momentum Alive?
Despite the pandemic, we believe that the health insurance industry will recover on top-line growth, mounting contribution from complementary businesses, product modifications, enriched services, expansion of international operations, better claims handling, medical cost management, technological investment and upgrade, mergers and acquisitions, and healthy balance sheets.
It is also believed that a fall in Medical Loss Ratio (MLR) will provide some cushion to the companies’ performances. It is the ratio of premium spent on claims. Since the hospital’s elective procedures and surgeries are put on hold, this will positively impact the MLR of health insurers in the form of lower claim outgo. We expect that a decreased MLR will aid insurers’ margins.
The overall bullish scenario makes us believe that growth will be consistent in this industry, which should drive prospects of companies with strong business fundamentals. Moreover, this buoyancy in the health insurance space is confirmed by its Zacks Industry Rank within the top 29% (74 of 252).
In a year’s time, the industry has rallied 13%, outperforming 7.7% growth of the S&P 500 Index.
Stocks on the Watchlist
The industry’s growth has been relentless and there appears no roadblock in the near future too. Thus investing in this space should be a wise choice especially at a time when other sectors are facing the heat.
Let us take a look at the stocks that should be on investors’ radar right now. Here we pick four bets that have an attractive VGM Score and a Zacks Rank #2 (Buy). Therefore companies hold great potential to retain a purple patch going forward.
Back-tested results showed that stocks with a VGM Score of A or B coupled with a solid Zacks Rank are the best investment bets. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Anthem is well-poised for growth on the back of its rising membership and a solid 2020 outlook. The company currently has a Zacks Rank of 2 and a VGM Score of A. Its long-term growth rate stands at 14.6%, higher than the industry's average of 13.6%. The stock has witnessed its 2020 earnings estimate move 0.1% north over the past 30 days. In a year’s time, shares of the company have lost 4.3% against its industry’s increase of 13%.
Molina Healthcare, Inc MOH is presently Zacks #2 Ranked and has a VGM Score of B. Over the past 30 days, the stock has seen its current-year earnings estimate being revised 0.2% upward. Management reaffirmed its initial guidance despite the COVID-19 effect. It is well-placed for growth, banking on ascending membership and a promising top line. Molina Healthcare has surged 30.8% in the past year compared with the industry’s growth of 13%.
Humana Inc. HUM is a #2 Ranked player at present and has a VGM Score of A. It is targeting growth on the back of its sturdy Medicare business, inorganic growth strategy and operating initiatives. In the past year, the company’s shares have soared 51.2%, outperforming its industry’s rise of 13%.
Zacks’ Single Best Pick to Double
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