Despite the past few months being challenging for the financial markets with the rising fear of recession, the healthcare industry is perfectly equipped to brave most market challenges thanks to its non-cyclical nature and the rising demand for healthcare services.
Given this backdrop, investing in the healthcare industry would be a lucrative choice. So, it could be wise to check out healthcare stocks Humana Inc. (HUM), Centene Corporation (CNC), and Molina Healthcare, Inc. (MOH). With strong fundamentals and solid growth prospects, these stocks seem to lead the industry.
Investing in the healthcare industry tends to act as a defensive layer to your investment portfolio as individuals typically do not cut back on prescription drug accession, delay medical processes, or cancel appointments solely due to a sluggish economy.
Moreover, as the global population ages and the prevalence of chronic diseases increases, the demand for healthcare products and services is expected to continue growing in the coming years. In addition, the development of new drugs, successful trial results, and collaborative agreements expanding their reach and offerings should help the healthcare industry.
Global health expenditure is expected to reach $1,700 per capita in 2026, compared to the 2021 figure of $1,530 per capita in Purchasing Power Parity (PPP). Furthermore, the U.S. individual health insurance market is expected to expand at a CAGR of 6.1% from 2023 to 2030.
Furthermore, the COVID-19 pandemic has brought renewed attention to the importance of healthcare, highlighting the need for investment in public health infrastructure, pandemic preparedness, and healthcare innovation.
According to a report by McKinsey, healthcare profit pools will grow at a 4% CAGR to $790 billion in 2026. Considering the rising need for healthcare, HUM, CNC, and MOH seem well-positioned to withstand any negative impact of strong macroeconomic factors.
Let’s look at the featured stocks in detail.
Humana Inc. (HUM)
HUM operates as a health and well-being company through two segments: Insurance and CenterWell. The company offers medical and supplemental benefit plans to individuals. Further, it offers pharmacy solutions, provider services, and home solutions services to its health plan members and third parties.
On April 20, the company’s Board of Directors declared a dividend to stockholders of $0.885 per share, payable on July 28, 2023. HUM’s four-year average dividend yield is 0.64%, while its annual dividend of $3.54 per share translates to a 0.71% yield on prevailing prices. Its dividend has grown at a 12.6% CAGR over the past three years and a 13.8% CAGR over the past five years. Also, it has a record of six years of consecutive dividend growth.
On April 13, HUM announced an additional $40 million investment to increase the supply of affordable housing. This investment is part of HUM’s Bold Goal initiative, which aims to improve the health and well-being of its members by addressing social determinants of health, such as housing insecurity. The funds would be used to support the development of affordable housing units in various states.
HUM’s total revenue increased 11.6% year-over-year for the first quarter that ended on March 31, 2023, to $26.74 billion. The company’s attributable net income came in at $1.24 billion, representing a 33.2% year-over-increase, while its income from operations grew 33.4% from the prior-year quarter to $1.72 billion. Also, its adjusted EPS increased 20.1% from the year-ago value to $9.38.
Street expects HUM’s revenue and EPS for the second quarter (ending June 2023) to increase 10.9% and 4% year-over-year to $26.24 billion and $9.02, respectively. Moreover, it surpassed the EPS estimates in each of its trailing four quarters and the revenue estimates thrice in its trailing four quarters.
Also, HUM’s revenue, EBITDA, and net income grew at CAGRs of 12.7%, 10.3%, and 1.2% over the past three years, respectively. Likewise, its EPS has grown at a CAGR of 3.2% in the same period.
Over the past year, the stock has gained 13.6% to close the last trading session at $501.69
HUM’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Growth, Value, and Sentiment. In the 10-stock A-rated Medical – Health Insurance industry, it is ranked #4. To see additional POWR Ratings of HUM for Momentum, Stability, and Quality, click here.
Centene Corporation (CNC)
CNC is a leading healthcare enterprise that provides programs and services to underinsured and uninsured families, commercial organizations, and military families through primary and specialty care physicians, hospitals, and ancillary providers. It operates in two segments, Managed Care and Specialty Services.
On March 31, the company was recognized by Fortune as one of America's Most Innovative Companies for 2023. CNC’s inclusion on the list is attributed to its innovative approach to healthcare delivery and its focus on addressing social determinants of health.
Adding to this recently, the company was named a 2023 Fortune Most Admired Company for the fifth consecutive year, one of America's Best Large Employers by Forbes, and was listed on the 2023 Bloomberg Gender-Equality Index for the fourth year.
The company's innovative approach has enabled it to stand out in a crowded and competitive industry and continue to grow and expand its reach.
CNC’s total revenue increased 4.6% year-over-year for the first quarter that ended on March 31, 2023, to $38.89 billion. Adjusted net earnings attributable to CNC came in at $1.17 billion and $2.11 per share, representing an 8.2% and 15.3% increase year-over-year, respectively. Also, its EBIT increased 21.2% from the year-ago value to $1.39 billion.
Analysts expect CNC’s EPS for the second quarter ending June 30, 2023, to increase 6.7% year-over-year to $1.89, while its revenue is expected to be $35.73 billion in the same period. Moreover, it topped the revenue and EPS estimates in each of the trailing four quarters, which is promising.
CNC’s revenue and EBITDA have grown at CAGRs of 24.3% and 22.6% over the past three years, respectively. Also, its levered FCF grew at a CAGR of 72.4% over the past three years.
The stock has gained 8.2% over the past month to close the last trading session at $69.29.
It’s no surprise that CNC has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It has a B grade for Value, Sentiment, and Quality. Within the same A-rated Industry, it is ranked #5 of 10 stocks.
In addition to the POWR Ratings we stated above, we also have CNC’s ratings for Growth, Momentum, and Stability. Get all CNC ratings here.
Molina Healthcare, Inc. (MOH)
MOH provides managed healthcare services to low-income families and individuals under the Medicaid and Medicare programs and through the state insurance marketplaces. It operates in four segments: Medicaid; Medicare; Marketplace; and Other.
On January 3, MOH confirmed that the California Department of Health Care Services had announced the awards of Medi-Cal contracts to MOH of California, commencing on January 1, 2024. Under the finalized award, MOH’s Medi-Cal membership is expected to grow from approximately 600,000 members as of September 30, 2022, to approximately 1.2 million members in 2024.
MOH’s current annual premium revenue related to its Medi-Cal contract of approximately $1.9 billion is now expected to be approximately $3.9 billion for the full-year 2024 versus the prior expectation of $5.5 billion based on DHCS’ August 2022 announcement.
During the fiscal fourth quarter (ended December 31, 2022), MOH’s total revenue increased 10.9% year-over-year to $8.22 billion. The company’s adjusted net income increased 41.2% from the same period in the prior year to $240 million, while its adjusted EPS came in at $4.10, representing a 42.4% increase year-over-year.
MOH’s revenue and EBITDA grew at CAGRs of 23.9% and 11.1% over the past three years. Likewise, its total assets grew at a CAGR of 21.9% during the same period.
The consensus EPS estimate of $5.21 for the first quarter, which ended on March 31, 2023, represents a 6.4% improvement year-over-year. The consensus revenue estimate of $8.31 billion for the about-to-be-reported quarter indicates a 7% increase from the prior-year period. The company has an excellent earnings surprise history, as it surpassed the consensus EPS estimates in each of its trailing four quarters.
MOH’s shares have gained 4.3% over the past month to close the last trading session at $279.28.
MOH’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has a B grade for Value and Quality. Within the same industry, it is ranked #6 out of 10 stocks. Click here to see the other ratings of MOH for Growth, Momentum, Stability, and Sentiment.
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HUM shares were trading at $503.50 per share on Wednesday afternoon, up $1.81 (+0.36%). Year-to-date, HUM has declined -1.52%, versus a 6.36% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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