The United States has one of the highest healthcare costs globally, and with healthcare costs outpacing inflation, health insurance has become mandatory. To save oneself from financial ruin, which may arise from rising healthcare expenses, the demand for health insurance will likely remain robust.
Moreover, given the fast-growing geriatric population and the increasing prevalence of chronic diseases, there is greater demand for healthcare coverage. Amid this backdrop, it could be wise to add fundamentally strong stocks UnitedHealth Group Incorporated (UNH), Humana Inc. (HUM), and Molina Healthcare, Inc. (MOH) to one’s watchlist.
Before diving deeper into the fundamentals of these stocks, let’s discuss why the health insurance industry is well-positioned for growth.
Despite advancements in medical science, the demand and costs of quality healthcare continue to rise. Healthcare costs have steadily increased for years due to advancing technology, drug prices, and chronic diseases. Typically, medical inflation outpaces inflation in the rest of the economy.
As the population continues to grow and age, the demand for medical services and health insurance is expected to increase, as when it comes to health, individuals are unlikely to cut back on their expenditures, irrespective of the economic cycle. This will enable health insurance companies to increase their profit margins.
The global health insurance market is projected to grow at a CAGR of 25.8% to reach $136.43 billion by 2028.
Let’s take a closer look at the fundamentals of the featured stocks
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 9.55% is 155.3% higher than the 3.74% industry average. Furthermore, the stock’s 1.37x trailing-12-month asset turnover ratio is 285.8% higher than the 0.35x industry average. Its 9.81% trailing-12-month levered FCF margin compares to the negative 2.30% industry average.
UNH’s total revenues for the second quarter ended June 30, 2023, increased 15.6% year-over-year to $92.90 billion. Its total earnings from operations rose 13% year-over-year to $8.06 billion. The company’s adjusted net earnings attributable to UnitedHealth Group common shareholders rose 9.1% year-over-year to $5.77 billion.
Also, its adjusted EPS came in at $6.14, representing an increase of 10.2% year-over-year.
Street expects UNH’s EPS and revenue for the quarter ending September 30, 2023, to increase 9.9% and 12.9% year-over-year to $6.36 and $91.30 billion, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 6.6% to close the last trading session at $508.68.
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 #5 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.
Humana Inc. (HUM)
HUM, and its subsidiaries operate as a health and well-being company in the United States. It operates through two segments, Insurance and CenterWell. The company offers medical and supplemental benefit plans to individuals.
In terms of the trailing-12-month EBITDA margin, HUM’s 5.27% is 40.7% higher than the 3.74% industry average. Its 1.89x trailing-12-month asset turnover ratio is 434.5% higher than the 0.35x industry average. Its 4.92% trailing-12-month EBIT margin compares to the negative 0.56% industry average.
HUM’s revenues for the first quarter ended March 31, 2023, increased 11.6% year-over-year to $26.74 billion. Its adjusted income from operations of the Insurance segment increased 29.9% year-over-year to $1.25 billion.
The company’s adjusted pretax results rose 18.7% year-over-year to $1.55 billion. Also, its adjusted EPS came in at $9.38, representing an increase of 20.1% year-over-year.
Analysts expect HUM’s EPS and revenue for the quarter ended June 30, 2023, to increase 2.2% and 10.6% year-over-year to $8.86 and $26.17 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 1.7% to close the last trading session at $453.44.
HUM’s positive outlook is reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B for Growth and Value. It is ranked #2 in the same industry. To see HUM’s Momentum, Stability, and Sentiment ratings, click 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. The company served in 19 states.
On June 30, 2023, MOH announced that it had entered a definitive agreement to acquire Brand New Day and Central Health Plan of California, Bright Health Company of California, Inc (BHCA) subsidiaries. The acquisition aligns with Molina's 2024 Medi-Cal contract, accelerates D-SNP growth initiatives, and activates the Los Angeles County 2024 D-SNP option.
Expected to add $1 per share to new store-embedded earnings, bringing the total to $5.50 per share. MOH’s President and CEO Joe Zubretsky said, “These additions fit perfectly with our strategy of serving high-acuity, low-income members and represent a textbook execution of our growth playbook.”
In terms of the trailing-12-month EBITDA margin, MOH’s 5.06% is 35.3% higher than the 3.74% industry average. Its 2.45x trailing-12-month asset turnover ratio is 592% higher than the 0.35x industry average. Its 1.06% trailing-12-month levered FCF margin compares to the negative 2.30% industry average.
For the fiscal first quarter ended March 31, 2023, MOH’s total revenues increased 4.9% year-over-year to $8.15 billion. Its adjusted net income rose 17% year-over-year to $337 million. The company’s operating income increased 22.3% year-over-year to $455 million. In addition, its adjusted EPS came in at $5.81, representing an increase of 18.6% year-over-year.
For the quarter ended June 30, 2023, MOH’s EPS and revenue are expected to increase 11.9% and 3.3% year-over-year to $5.09 and $8.32 billion, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 10.7% to close the last trading session at $313.97.
MOH’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Quality and a B for Value. Within the Medical – Health Insurance industry, it is ranked #6. Click here to see MOH’s Growth, Momentum, Stability, and Sentiment ratings.
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UNH shares were trading at $511.10 per share on Tuesday morning, up $2.42 (+0.48%). Year-to-date, UNH has declined -2.86%, versus a 19.96% 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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