Zacks Industry Outlook Highlights UnitedHealth Group, The Cigna Group, Humana, Centene Corporation and Molina Healthcare

For Immediate Release

Chicago, IL – June 9, 2023 – Today, Zacks Equity Research discusses UnitedHealth Group Incorporated UNH, The Cigna Group CI, Humana Inc. HUM, Centene Corporation CNC and Molina Healthcare, Inc. MOH.

Industry: HMOs


5 HMO Industry Stocks to Watch as Technology Expenses Take a Toll

The U.S. health insurance industry, referred to as Health Maintenance Organization (HMO), is expected to gain on the back of growing premiums and an expanding customer base, thanks to the well-performing Government business. The industry players have an active merger and acquisition (M&A) strategy in place. Though technology investments are made to boost operational efficiencies, these often escalate costs for industry players. Shortage of medical personnel across the United States is a concern. Despite the challenges, companies like UnitedHealth Group Incorporated, The Cigna Group, Humana Inc., Centene Corporation and Molina Healthcare, Inc. appear well-placed to counter the industry headwinds.

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 premiums to health and medical insurance policies. Industry participants also provide administrative and managed-care services for self-funded insurance. Services are generally provided 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 Fate of the HMO Industry

A High Technology Expense Level: Telehealth services were prevalent in the United States prior to the COVID-19 pandemic but their usage was not as widespread as it has been since the onset of the pandemic. Per a report by Grand View Research, the global telehealth market is anticipated to witness a 24% CAGR over the 2023-2030 period. This impressive growth forecast indicates that demand for digital healthcare services will continue to be high. HMO players are therefore compelled to undertake technology investments to build telehealth platforms. Needless to say, the platforms fetch a steady revenue stream for industry players and boost their operational efficiencies. But tech investments might escalate costs and erode the margins of health insurers.

Shortage of Medical Staff: A dearth in the availability of medical personnel is taking a toll on the efficient functioning of hospitals nationwide. An increase in the number of nurses reaching retirement age, greater life expectancy of the overall population and faculty shortages in nursing schools are some of the factors triggering a scarcity in the nursing workforce. Health insurers collaborate with hospitals, physicians and other facilities to offer discounted care access to plan members. Therefore, the effectiveness of services remains a crucial factor behind health plan renewals. A shortage in the nursing workforce can reduce a hospital’s ability to deliver quality care services and indirectly affect the customer base of HMO companies. Healthy membership growth is crucial to the premiums of health insurers.

Rising Customer Base: Most of the participants in the HMO space distribute cost-effective health plans through their Government business and upgrade them from time to time. The strength of such plans leads to federal or state contract wins for HMO players.  Plan upgrades as well as contract wins bring in more customers for the industry participants and provide an impetus to premiums. Also, these provide them an opportunity to serve different underserved U.S. communities and bolster their geographic footprint. Given an aging U.S. population, the solid demand for Medicare plans (meant for 65 years and above), which form part of the abovementioned Government business, is expected to continue.

Active M&A Moves: An active M&A strategy offers an opportunity for the industry players to advance their capabilities, enter new regions, delve deeper into existing ones and grow their customer base. The HMO stocks gain from diversification benefits that result from an active pursuit of M&A deals and attain a competitive edge over industry peers. Though interest rates were increased aggressively by the Fed in order to tame inflation, the percentage of increase seems to have somewhat slowed down. This, in turn, is likely to bring down borrowing costs, making it easier for companies to opt for loans to finance M&A deals and avoid complete exhaustion of cash reserves. According to Tom Miles and Brian Healy, Co-Heads of Americas M&A at Morgan Stanley, the pace of such deals is likely to pick up in the second half of 2023 and beyond.

Zacks Industry Rank Hints Bearish Outlook

The group’s  Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates tepid near-term prospects. The Zacks Medical-HMOs industry is housed within the broader Zacks  Medical sector. It currently carries a Zacks Industry Rank #181, which places it in the bottom 28% 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 bottom 50% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate.

Despite the dismal scenario, we will present a few stocks that one can retain, given their solid growth endeavors. But before that, it’s worth looking at the industry’s recent stock-market performance and the valuation picture.

Industry Vs. Sector & S&P 500

The Zacks Medical-HMO industry has outperformed the Medical sector but underperformed the Zacks S&P 500 composite in the past year.

In the said time frame, the industry has gained 1.5% against the Medical sector’s decline of 7.5%. The Zacks S&P 500 composite has rallied 7% in a year.

Industry’s Current Valuation

On the basis of the forward 12-month price-to-earnings (P/E) ratio, which is commonly used for valuing medical stocks, the industry trades at 17.25X compared with the S&P 500’s 19.03X and the sector’s 22.32X.

Over the past five years, the industry has traded as high as 21.49X and as low as 12.93X, with the median being at 17.69X, as the chart below shows.

5 Stocks to Keep a Close Eye On

We present five stocks from the space currently carrying a Zacks Rank #3 (Hold). Considering the current industry scenario, it might be prudent for investors to 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.

UnitedHealth Group: Based in Minnesota, UnitedHealth Group benefits from its solid segmental performance. While a strong Government business empowers the health insurer to gain more Medicare and Medicaid customers, the Optum unit gains on buyouts and utilization of advanced technology and market-leading health analytics. A robust telehealth services suite developed through significant investments enables UNH to deliver virtual healthcare services effectively.

The Zacks Consensus Estimate for UnitedHealth Group’s 2023 earnings is pegged at $24.97 per share, indicating a 12.5% rise from the year-ago reported figure. The consensus mark for current-year revenues suggests 12.6% growth from the year-ago actual. UNH’s earnings beat estimates in each of the last four quarters, the average being 4.04%. Its shares have gained 3.7% in the past three months.

Cigna: This Connecticut-based health insurer 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 a growing customer base within its U.S. Government and U.S. Commercial businesses. New collaborations or contract extensions with renowned healthcare systems strengthen the capabilities of the health insurer.

The Zacks Consensus Estimate for Cigna’s 2023 earnings is pegged at $24.81 per share, implying 6.6% growth from the prior-year reported figure. The consensus mark for current-year revenues suggests a 4.6% improvement from the year-ago actual. CI’s earnings outpaced estimates in each of the last four quarters, the average being 6.56%. Even though its shares have declined 3.8% in the past three months, solid fundamentals are likely to help shares bounce back in the days ahead.

Humana: Headquartered in Kentucky, Humana is driven by higher premiums and an expanding customer base across its Medicaid and Medicare businesses. The health insurer teams up with well-reputed organizations to launch new plans or upgrade features within the existing ones. The strength of such plans leads to numerous contract wins and renewed agreements for Humana from various federal or state authorities. A series of acquisitions undertaken over the years, including those of Family Physicians Group, iCare and Inclusa, has diversified income streams and extended the nationwide presence of HUM.

The Zacks Consensus Estimate for Humana’s 2023 earnings is pegged at $28.25 per share, indicating a 11.9% improvement from the year-ago reported figure. The consensus mark for current-year revenues suggests 10% growth from the year-ago actual. HUM’s earnings surpassed estimates in each of the last four quarters, the average being 8.87%. Its shares have rallied 3.7% in the past three months.

Centene: Based in Missouri, Centene benefits from a strong Managed Care business resulting from growth in Medicaid membership and the Medicare business, and several contract wins. It follows an inorganic growth route, which, in turn, bolsters its capabilities and provides an opportunity to boost membership. A well-diversified healthcare suite and solid nationwide presence have fetched numerous contract wins, and deal renewals for CNC. The health insurer also resorts to divestitures for intensifying focus on growing its core Managed Care business.

The Zacks Consensus Estimate for Centene’s 2023 earnings is pegged at $6.43 per share, which implies a rise of 11.3% rise from the year-ago reported figure. The consensus mark for current-year revenues suggests 0.7% growth from the year-ago actual. CNC’s earnings outpaced estimates in two of the last four quarters and missed the mark twice, the average being 0.59%. Its shares have rallied 3.3% in the past three months.

Molina Healthcare: This California-based health insurer benefits from higher premium revenues and a growing customer base, resulting from well-devised Medicare and Medicaid plans. Several contract wins and renewals are likely to drive membership growth in the days ahead. Frequent acquisitions pursued by MOH have solidified its capabilities and resulted in an extensive nationwide foothold. It also resorts to tactical cost-cutting measures that aid margins.

The Zacks Consensus Estimate for Molina Healthcare’s 2023 earnings is pegged at $20.14 per share, indicating a 12.4% rise from the year-ago reported figure. The consensus mark for current-year revenues hints at a 3.3% improvement from the year-ago actual. MOH’s earnings beat estimates in each of the last four quarters, the average being 5.42%. Its shares have gained 7.5% in the past three months.

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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  for information about the performance numbers displayed in this press release.

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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

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