Typically, healthcare costs outpace inflation. To insulate oneself from the ever-rising healthcare costs, health insurance has become mandatory. Along with rising healthcare costs, the rapidly aging population and a growing number of chronic diseases are pushing the need for quality healthcare, thereby driving demand for health insurance,
Amid this backdrop, it could be wise to add fundamentally strong health insurance stocks, UnitedHealth Group Incorporated (UNH), The Cigna Group (CI), and Centene Corporation (CNC), to your portfolios.
Before diving deeper into the fundamentals of these stocks, let’s discuss why the health insurance industry is well-positioned for growth.
When it comes to health, individuals are unlikely to cut back on its expenditure. The pandemic has taught us the importance of having good health. As the population continues to grow and age, the demand for medical services and health insurance is likely to be robust.
U.S. healthcare costs are growing 1.1% faster than the annual GDP. Moreover, U.S. healthcare spending is projected to reach $6.2 trillion, accounting for nearly 20% of the GDP. This ensures a steady and reliable customer base for medical-health insurance companies.
Healthcare costs have been rising steadily for years due to advancing technology, increasing drug prices, and rising chronic diseases. This results in higher insurance premiums for medical-health insurance companies.
The global health insurance market is projected to grow at a CAGR of 25.8% to reach $136.43 billion by 2028.
Considering these factors, it could be wise to buy the featured stocks. Let's take a closer look at their fundamentals.
UnitedHealth Group Incorporated (UNH)
UNH is a diversified healthcare company in the U.S., operating through four segments: UnitedHealthcare, Optum Health, Optum Insight, and Optum Rx.
In terms of the trailing-12-month EBITDA margin, UNH’s 9.57% is 171.1% higher than the 3.53% industry average. Likewise, its 10.38% trailing-12-month levered FCF margin compares to the negative 2.57% industry average. Furthermore, the stock’s 1.33x trailing-12-month asset turnover ratio is 278.5% higher than the 0.35x industry average.
UNH’s total revenues for the first quarter ended March 31, 2023, increased 14.7% year-over-year to $91.93 billion. Its total earnings from operations rose 16.3% year-over-year to $8.09 billion. The company’s adjusted net earnings attributable to UNH common shareholders increased 12.7% year-over-year to $5.90 billion.
Also, its adjusted EPS came in at $6.26, representing an increase of 14% year-over-year. In addition, its cash flows from operating activities increased 207% year-over-year to $16.33 billion.
Street expects UNH’s EPS and revenue for the quarter ending June 30, 2023, to increase 9% and 13.2% year-over-year to $6.07 and $90.93 billion, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained marginally to close the last trading session at $465.89.
UNH’s POWR Ratings reflect strong prospects. It has an overall rating of B, which translates to a Buy in our proprietary system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #6 out of 12 stocks in the A-rated Medical – Health Insurance industry. It has a B grade for Stability and Quality. Click here to see UNH’s rating for Growth, Value, Momentum, and Sentiment.
The Cigna Group (CI)
CI provides insurance and related services in the U.S. It operates through its Evernorth Health Services and Cigna Healthcare segments. The company also offers permanent insurance contracts for financing employer-paid benefits.
In terms of the trailing-12-month EBITDA margin, CI’s 5.43% is 53.7% higher than the 3.53% industry average. Likewise, its 1.22x asset turnover ratio is 246% higher than the 0.35x industry average. Additionally, the stock’s 4.39% trailing-12-month EBIT margin compares to the industry average of negative 1.58%.
CI’s total net revenues for the first quarter ended March 31, 2023, increased 5.7% year-over-year to $46.52 billion. Its adjusted income from operations came in at $1.62 billion. The company’s shareholders’ net income after-tax rose 5.8% over the prior-year quarter to $1.27 billion. Also, its EPS came in at $4.24, representing an increase of 13.7% year-over-year.
For the quarter ending September 30, 2023, CI’s EPS is expected to increase 15.2% year-over-year to $6.96. Its revenue for the quarter ending June 30, 2023, is expected to increase by 3.5% year-over-year to $47.08 billion. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 9.1% to close the last trading session at $269.49.
CI’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has a B grade for Growth, Value, Sentiment, and Quality. It is ranked #4 in the same industry. To see CI’s ratings for Momentum and Stability, click here.
Centene Corporation (CNC)
CNC operates as a healthcare enterprise that provides programs and services to underinsured and uninsured families, commercial organizations, and military families in the US. It operates in two segments: Managed Care and Specialty Services.
On June 13, 2023, CNC announced the divestiture of Apixio. CNC’s CEO Sarah M. London said, “We are confident this transaction will best position Apixio to expand its impact as a leading artificial intelligence platform that enables value-based care programs across the country.”
“The close of this transaction and our ongoing partnership with Apixio are a reflection of our continued execution against our long-term strategy and value creation efforts,” she added.
In terms of the trailing-12-month EBITDA margin, CNC’s 4.45% is 26.1% higher than the 3.53% industry average. Likewise, its 1.65x asset turnover ratio is 369.9% higher than the 0.35x industry average. Additionally, the stock’s 5.33% trailing-12-month levered FCF margin compares to the industry average of negative 2.57%.
For the fiscal first quarter ended March 31, 2023, CNC’s total revenues increased 4.6% year-over-year to $38.89 billion. Its adjusted net earnings rose 8.2% over the prior-year quarter to $1.17 billion. The company’s net cash provided by operating activities increased 270.9% year-over-year to $ 4.27 billion. In addition, its adjusted EPS came in at $2.11, representing an increase of 15.3% year-over-year.
Analysts expect CNC’s EPS and revenue for the quarter ending June 30, 2023, to increase 15.6% and 1.7% year-over-year to $2.05 and $36.55 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 4.1% to close the last trading session at $66.12.
CNC’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has a B grade for Growth, Value, Sentiment, and Quality. Within the Medical – Health Insurance industry, it is ranked #2. Get CNC’s rating for Momentum and Stability, here.
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UNH shares were trading at $458.98 per share on Friday afternoon, down $6.91 (-1.48%). Year-to-date, UNH has declined -12.76%, versus a 15.95% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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