A Look Into Clover Health (CLOV) and Humana (HUM): Are They Worth Investing In?

The medical sector is expanding due to increased health awareness, an aging population, and technological developments. Furthermore, the healthcare industry is relatively resistant to economic turbulence.

So, investors looking for quality medical stocks can consider buying Humana Inc. (HUM). However, I think it could be wise to wait for a better entry point in Clover Health Investments, Corp. (CLOV), considering its weak fundamentals.

The healthcare industry is predicted to increase at a 12.9% CAGR until 2027, resulting in a $27.67 billion market volume.

According to IMARC Group, the global health insurance market will reach $2.60 trillion by 2028, growing at a 7.1% CAGR. The rising frequency of chronic diseases, rising medical service expenses, and the expanding availability of various surgical procedures are some of the important drivers driving the market.

Investors’ interest in medical stocks is evident from the iShares Global Healthcare ETF (IXJ) 2.2% returns over the past three months.

However, insurance firms are confronted with new and unexpected challenges, such as rising healthcare costs and consumer demands, which necessitate innovative solutions.

Let’s delve deeper into the fundamentals of the stocks mentioned above.

Stock to buy:

Humana Inc. (HUM)

HUM, together with its subsidiaries, operates as a health and well-being company in the United States. It operates through two segments, Insurance and CenterWell.

HUM’s forward EV/Sales of 0.58x is 83.8% lower than the industry average of 3.61x. Its forward Price/Sales multiple of 0.60 is 85.9% lower than the industry average of 4.26.

HUM’s trailing-12-month EBITDA margin of 5.27% is 155.3% higher than the industry average of 2.06%. Its trailing-12-month asset turnover ratio of 1.89x is 438.2% higher than the industry average of 0.35x.

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.

The consensus revenue estimate of $103.40 billion for the year ending December 2023 represents an 11.3% increase year-over-year. Its EPS is expected to grow 12.1% to $28.30 for the same period. It surpassed EPS estimates in all four trailing quarters.

HUM’s shares have gained 9.8% over the past year to close the last trading session at $496.60.

HUM’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

HUM also has an A grade for Quality and a B for Growth, Value, and Sentiment. It is ranked #12 out of 51 stocks in the A-rated Medical - Health Insurance industry. Click here for the additional POWR Ratings for Momentum and Stability for HUM.

Stock to Hold:

Clover Health Investments, Corp. (CLOV)

CLOV provides medicare advantage plans in the United States. The company, through its Clover Assistant, a software platform that provides preferred provider organization and health maintenance organization health plans for medicare-eligible consumers.

CLOV’s trailing-12-month gross profit margin of 4.09% is 92.7% lower than the 55.78% industry average. Its trailing-12-month CAPEX / Sales of 0.14% is 96.6% lower than the 4.63% industry average.

CLOV’s total revenue decreased 39.6% year-over-year to $527.78 million for the fiscal first quarter that ended March 31, 2023. Its non-GAAP EBITDA loss increased 57% year-over-year to $30.50 million. Also, its loss from operations increased 17% year-over-year to $72.61 million.

Analysts expect CLOV’s revenue to decrease 42.5% year-over-year to $2 in 2023. Its EPS is expected to come in at $0.53 in 2023. The stock has lost 64.3% over the past year to close its last trading session at $0.95.

CLOV has an overall C rating, translating to Neutral in our POWR Ratings system. It has a C grade for Growth, Value, Momentum, and Quality. It is ranked #10 in the same industry.

Beyond what is stated above, we’ve also rated CLOV for Stability and Sentiment. Get all CLOV ratings here.

What To Do Next?

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HUM shares were trading at $493.45 per share on Tuesday afternoon, down $3.15 (-0.63%). Year-to-date, HUM has declined -3.48%, versus a 10.15% rise in the benchmark S&P 500 index during the same period.

Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.

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