Zacks Industry Outlook Highlights UnitedHealth, The Cigna, Humana, Centene and Molina Healthcare
For Immediate Release
Chicago, IL – November 21, 2023 – Today, Zacks Equity Research discusses UnitedHealth Group Inc. UNH, The Cigna Group CI, Humana Inc. HUM, Centene Corp. CNC and Molina Healthcare, Inc. MOH.
Industry: HMO
Link: https://www.zacks.com/commentary/2186490/5-hmo-stocks-set-to-gain-from-growing-membership-tech-advancements
The U.S. health insurance industry, commonly referred to as the Health Maintenance Organization (HMO), is likely to be aided by rising premiums that result from a growing membership base. Contract wins from federal or state authorities also contribute to membership and premium growth. An aging population will continue to keep demand for health insurers' Medicare plans high in the future. Industry players resort to a merger and acquisition (M&A) strategy and technology advancements to enhance capabilities. Companies like UnitedHealth Group Inc., The Cigna Group, Humana Inc., Centene Corp. and Molina Healthcare, Inc. are well-placed to gain from the industry's favorable growth prospects.
About the Industry
The Zacks HMO industry consists of entities (either private or public) that take care of subscribers' basic and supplemental health services. Companies in this space primarily assume risks and assign health and medical insurance policy premiums. Industry participants also provide administrative and managed-care services for self-funded insurance. Services are generally offered by a network of approved care providers (called in-network), which include primary care physicians, clinical facilities, hospitals and specialists. However, out-of-network exceptions are made during emergencies or when it is medically necessary. Health insurance plans can be availed through private purchases, social insurance or social welfare programs.
4 Trends Shaping the Future of the HMO Industry
A Growing Premium Base: The industry participants devise affordable health insurance plans and infuse them with some eye-catching features to boost the lucrativeness of such plans and stand out from their peers. By extending such beneficial plans across several U.S. communities, the health insurers enjoy a growing membership base. This, in turn, fetches them with a steady flow of premiums — the most significant contributor to revenues of any health insurer. The strength of these plans fetches numerous contract wins and renewed agreements from federal or state authorities. However, the resumption of elective procedures, which were deferred to keep beds open for a humongous number of COVID patients, in full swing poses a concern for health insurers. An uptick in elective surgeries implies the need to address a higher number of claims from plan members. This would elevate costs, but the financial strength and diversified operations are expected to provide a shield to the industry participants from such headwinds.
A Rising Greying Population: The Medicare plans are intended to cater to people aged 65 or above. An aging U.S. population is likely to sustain the solid demand for the plans in the days ahead. Per the leading market and consumer data provider, Statista, around 17.3% of Americans were 65 years or above in 2020. The percentage is anticipated to reach 22% by 2050. Industry participants can, therefore, make use of the Medicare plans to welcome more members of the rapidly growing senior population and grow its customer base. They contract with an extensive network of healthcare providers, which can be physician groups, hospitals, ancillary providers, and pharmacies, to deliver quality care services to the medically vulnerable population.
Technological Advancements: The industry continues to undertake significant investments in developing virtual healthcare solutions (more commonly referred to as telehealth services) in order to embrace the digitization trend being infused across every sphere of life. These services enable patients to receive care from the comfort of their homes and thereby reduce the mounting burden on the U.S. healthcare system arising from frequent patient admissions. Such technologies, therefore, boost operational efficiencies and reduce costs for the industry participants. Though tech investments might result in escalating costs for health insurers, virtual services continue to fetch regular revenues and enable them to achieve a competitive edge over their peers.
An Active M&A Strategy: The health insurers resort to an M&A strategy for upgrading their product and services portfolio that will fetch them a growing number of members. Such initiatives are also meant to expand the global presence and bring diversification benefits to health insurers, which are crucial to strengthening one's market position. However, continued rate hikes by the Fed in order to tame inflation may have thrown a roadblock to health insurers' pursuit of an M&A strategy, considering the rising borrowing costs that make people reluctant to opt for loans for financing M&A deals.
Zacks Industry Rank Instills Optimism
The group's Zacks Industry Rank, which is the average of the Zacks Rank of all-member stocks, indicates bright near-term prospects. The Zacks Medical-HMOs industry, which is housed within the broader Zacks Medical sector, currently carries a Zacks Industry Rank #61, which places it in the top 24% of more than 250 Zacks industries.
Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. The industry's positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are upbeat about this group's earnings growth potential. The industry's earnings estimates for 2023 have increased 1.5% from the past year. Given the bright near-term prospects, companies in the space are expected to gain heavily.
Before we present a few stocks you may want to buy or retain in your portfolio, let's look at the industry's recent stock-market performance and valuation picture.
Industry Outperforms Sector But Lags S&P 500
The Zacks Medical-HMO industry has outperformed the Medical sector but fell short of the Zacks S&P 500 composite in the past year.
In the said time frame, the industry has gained 1% against the Medical sector's decline of 8%. The Zacks S&P 500 composite has risen 14.8% in the same time frame.
Industry's Current Valuation
Based on the forward 12-month price-to-earnings (P/E) ratio, which is commonly used for valuing medical stocks, the industry trades at 16.45X compared with the S&P 500's 19.1X and the sector's 21.67X.
Over the past five years, the industry has traded as high as 19.57X and as low as 11.79X, with the median being at 15.91X.
5 Stocks to Keep a Close Eye On
We present five stocks from the space, either carrying a Zacks Rank #2 (Buy) or #3 (Hold). Considering the current industry scenario, it might be prudent for investors to buy or retain these stocks in their portfolio, as these are well-placed to generate growth in the long haul.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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 provide the Zacks Rank #2 health insurer with contract wins from time to time. Management is optimistic to achieve long-term premium revenue growth within 13-15%. A series of acquisitions undertaken over the years have expanded the capabilities and solidified the geographical footprint of MOH. A strong financial standing provides it with a cushion to pursue business investments.
The Zacks Consensus Estimate for Molina Healthcare's 2023 earnings is pegged at $20.83 per share, indicating a 16.2% rise from the year-ago reported figure. MOH's earnings beat estimates in each of the last four quarters, the average being 7.46%. Its shares have gained 22.7% in the past six months.
Centene: Based in Missouri, the revenues of Centene are aided by strength in its Medicare and Medicaid businesses that fetched several contract wins and led to membership growth for it. An aging U.S. population favors Medicare Advantage plans, which is likely to continue driving solid demand for CNC's plans. This Zacks Rank #2 health insurer follows an inorganic growth route in the form of pursuing acquisitions and provider collaborations, which, in turn, bolsters its capabilities, diversifies its portfolio and solidifies its nationwide presence.
The Zacks Consensus Estimate for Centene's 2023 earnings is pegged at $6.64 per share, which suggests a 14.9% rise from the year-ago reported figure. CNC's earnings outpaced estimates in two of the last four quarters and missed the mark twice, the average being 5.62%. Its shares have rallied 11.4% in the past six months.
UnitedHealth Group: Headquartered in Minnesota, the health insurer benefits from solid contributions from its UnitedHealthcare and Optum businesses. The UnitedHealthcare unit devises lucrative Medicare and Medicaid plans and upgrades them from time to time. It also receives contract wins or renewed agreements from the federal or state authorities. The Optum unit continues to benefit on the back of numerous buyouts and utilization of advanced technology, market-leading health analytics, modern care delivery and data-driven population health approaches. An active M&A strategy and significant technology investments to develop the in-demand telehealth services also remain in place for the Zacks Rank #3 company.
The Zacks Consensus Estimate for UnitedHealth Group's 2023 earnings is pegged at $24.94 per share, indicating a 12.4% rise from the year-ago reported figure. UNH's earnings beat estimates in each of the last four quarters, the average being 2.74%. Its shares have gained 11.6% in the past six months.
Cigna: The Connecticut-based company continues to benefit from the strength exhibited by its two growth platforms, namely Evernorth and Cigna Healthcare. While a solid specialty pharmacy services suite drives the growth of the Evernorth platform, the Cigna Healthcare unit benefits from an expansive customer base within its U.S. Government and U.S. Commercial businesses. An aging U.S. population is expected to sustain the solid demand for the Zacks Rank #3 company's Medicare plans in the days ahead. The health insurer resorts to continuous product expansions, acquisitions and collaborations with renowned healthcare systems.
The Zacks Consensus Estimate for Cigna's 2023 earnings is pegged at $24.82 per share, suggesting 6.7% growth from the prior-year reported figure. CI's earnings outpaced estimates in each of the last four quarters, the average being 2.52%. Its shares have gained 10.6% in the past six months.
Humana: Based in Kentucky, Humana gains on the back of an expanding customer base, which it earns through distributing affordable health insurance plans across different U.S. communities and making efforts to upgrade such plan offerings from time to time. An increase in membership fetches the resultant benefit of improved premiums. In order to cater more effectively to the aging population, HUM has the CenterWell brand in place. An array of acquisitions and collaborations undertaken over the years has upgraded its capabilities, diversified income streams and expanded the global presence of the Zacks Rank #3 health insurer.
The Zacks Consensus Estimate for Humana's 2023 earnings is pegged at $28.29 per share, indicating an 12.1% improvement from the year-ago reported figure. HUM's earnings surpassed estimates in each of the last four quarters, the average being 5.47%. Even though its shares have declined 3.1% in the past six months, solid fundamentals will likely help shares bounce back in the days ahead.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
See Stocks Free >>
Join us on Facebook: https://www.facebook.com/ZacksInvestmentResearch/
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Media Contact
Zacks Investment Research
800-767-3771 ext. 9339
support@zacks.com
https://www.zacks.com
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
UnitedHealth Group Incorporated (UNH) : Free Stock Analysis Report
Humana Inc. (HUM) : Free Stock Analysis Report
Molina Healthcare, Inc (MOH) : Free Stock Analysis Report
Cigna Group (CI) : Free Stock Analysis Report
Centene Corporation (CNC) : Free Stock Analysis Report
