Clover Health vs. Anthem: Which Healthcare Plan Stock is a Better Buy?

Health benefits company Anthem, Inc. (ANTM) in Indianapolis operates through four segments: Commercial & Specialty Business; Government Business; IngenioRx; and Other. It offers a spectrum of network-based managed care health benefit plans. In comparison, Clover Health Investments, Corp. (CLOV) in Franklin, Tenn., operates as a Medicare Advantage insurer. Through its Clover Assistant, the company provides preferred provider organization and health maintenance organization health plans for Medicare-eligible consumers.

The COVID-19 pandemic has highlighted the importance of healthcare plans. Furthermore, with an aging population, healthcare plans are in high demand. The healthcare plans industry is considered relatively stable in terms of performance, given the near-inelastic demand for healthcare plans, making it a favorite of investors during volatile markets. Furthermore, the advent of advanced smartphone apps and updated insurance schemes should contribute to the market's growth in the near future. Thus, both ANTM and CLOV should benefit.

ANTM’s stock has gained 5% in price over the past three months, while CLOV has generated negative returns. Also, ANTM’s 18.7% gains over the past six months compare with CLOV’s negative returns. Furthermore, ANTM is the clear winner with 55.5% gains versus CLOV’s negative returns in terms of their past year’s performance.

Click here to checkout our Healthcare Sector Report for 2022

But which of these two stocks is a better buy now? Let’s find out.

Latest Developments

On Jan. 26, 2022, Gail K. Boudreaux, President and CEO of ANTM, said, "We begin 2022 with ongoing momentum across all our businesses, and we're confident in our ability to deliver earnings growth consistent with our long-term targeted range as we innovate for consumers and advance our digital platform for health."

On Jan. 10, 2022, CLOV announced Medicare Advantage membership growth of over 25%, versus the beginning of 2021, outpacing the overall industry’s growth average of approximately 10% year-over-year. Andrew Toy, CLOV’s President, said, “We believe our dramatic growth in Georgia demonstrates how the model we homed in New Jersey is replicable in more states and look forward to further establishing Clover’s MA presence in key markets this year.”

Recent Financial Results

ANMT’s revenue increased 14.9% year-over-year to $36.58 billion for its fiscal fourth quarter, ended Dec. 31, 2021. In addition, the company’s adjusted net income grew 98% year-over-year to $1.26 billion, while its adjusted EPS came in at $5.14, up 102.4% year-over-year.

CLOV’s revenues grew 152.6% year-over-year to $427.20 million for its fiscal third quarter, ended Sept. 30, 2021. However, its adjusted EBITDA loss increased 411.5% year-over-year to $102.30 million. And its  net loss came in at $34.50 million compared to $12.80 million in income in the prior-year quarter.

Expected Financial Performance

Analysts expect ANTM’s revenue to increase 13.3% for the quarter ending March 31, 2022, and 11.6% in fiscal 2022. The company’s EPS is expected to grow 10.3% for the quarter ending March 31, 2022, and 9.7% in fiscal 2022. Furthermore, its EPS is expected to grow at a 12.9% rate per annum over the next five years.

In comparison, CLOV’s revenue is expected to increase 206.2% for the quarter ending March 31, 2022, and 80.9% in fiscal 2022. Its EPS is expected to decline 76.9% for the quarter ending March 31, 2022, grow 23.7% in fiscal 2022. The company’s EPS is expected to grow at an 18% rate per annum over the next five years.

Profitability

ANTM’s $138.64 billion trailing-12-month revenue is higher than CLOV’s $1.16 billion. Also, ANTM is more profitable with gross profit and net income margins of 25.96% and 4.40%, respectively, compared to CLOV’s negative returns.

Furthermore, ANTM’s 17.58%, 5.94%, and 9.64% respective ROE, ROA, and ROTC compare with CLOV’s negative values.

Valuation

In terms of trailing-12-month P/S, ANTM is currently trading at 0.82x, which is 36.7% higher than CLOV’s 0.60x. And ANTM’s 0.93x trailing-12-month EV/S is 9.4% higher than CLOV’s 0.85x.

So, CLOV is more affordable.

POWR Ratings

ANTM has an overall A rating, which equates to a Strong Buy in our proprietary POWR Ratings system. In comparison, CLOV has an overall F rating, which translates to a Strong Sell. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

ANTM has a B grade for Quality. This is justified given ANTM's 6.31% trailing-12-month EBIT margin, which is 171.4% higher than the 2.32% industry average.  On the other hand, CLOV has a Quality grade of D, which is in sync with its negative trailing-12-month EBIT margin, which compares with the 2.32% industry average.

ANTM also has a B grade for Growth, which is consistent with analysts’ expectations that its EPS will increase in the coming months. In contrast, CLOV has a Growth grade of D, consistent with analysts’ expectations that its EPS will decline in the upcoming months.

Among 11 stocks in the B-rated Medical - Health Insurance industry, ANTM is ranked third, while CLOV is ranked last.

Beyond what I have stated above, we have also rated the stocks for Value, Sentiment, Momentum, and Stability. Click here to view all the ANTM ratings. Also, get all the CLOV ratings here.

The Winner

Because the demand for healthcare plans is expected to increase, both ANTM and CLOV should benefit. However, we think ANTM is a better buy now because of its robust financials, better growth prospects, and higher profitability.

Our research shows that odds of success increase when one invests in stocks with an overall rating of Strong Buy or Buy. View all the other top-rated stocks in the Medical - Health Insurance industry here.

Click here to checkout our Healthcare Sector Report for 2022

ANTM shares were unchanged in premarket trading Friday. Year-to-date, ANTM has declined -2.63%, versus a -7.88% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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