As the healthcare industry remains relatively stable because of the inelastic demand for its products and services, ground-breaking medical stocks Elevance Health, Inc. (ELV), Humana Inc. (HUM), and Centene Corporation (CNC) could be solid picks for your portfolio this month.
So far this year, investors remain baffled due to persistent macro challenges, such as the Fed’s interest rate hikes and the regional banking turmoil. Amid ongoing uncertainties, sectors that are resilient during economic downturns, such as healthcare, could offer attractive investment opportunities.
Despite still-elevated inflation, total health expenditure is expected to continue on an upward trend. The Centers for Medicare and Medicaid Services estimates that U.S. healthcare expenditure would grow 5.1% per year to a projected 19.6% share of Gross Domestic Product (GDP) in 2030.
In addition, with advancements in technology, deployment of telemedicine approaches, and changing healthcare needs, the demand for medical supplies is expected to rise. In terms of revenue, the global medical supplies market is poised to reach $163.5 billion by 2027, growing at a CAGR of 3.4%.
Increased health awareness fueled by the pandemic, the rapidly aging population, and the innovation in pharmaceuticals and treatments are expected to drive the growth of medical stocks. The global health insurance market is expected to reach $2.60 trillion by 2028, growing at a CAGR of 7.2%.
Moreover, the defensive nature of this sector can help portfolios navigate the choppy waters as recession fears have resurfaced in the economy. Amid this, fundamentally strong medical stocks ELV, HUM, and CNC could be ideal additions this month.
Elevance Health, Inc. (ELV)
ELV operates as a health benefits company through four segments: Commercial & Specialty Business; Government Business; CarelonRx; and Other. It serves approximately 118 million people through its medical, digital, pharmacy, behavioral, clinical, and care solutions portfolio.
On February 15, ELV acquired BioPlus, a comprehensive specialty pharmacy subsidiary of CarepathRx, a portfolio company of Nautic Partners. With covering more than 100 limited distribution medications and a footprint in 50 states, BioPlus is expected to deepen ELV’s specialty pharmacy capabilities and serve its customers better.
On April 18, the company's board of directors declared a second-quarter dividend of $1.48 per share, payable to its shareholders on June 23, 2023. ELV pays a $5.92 per share dividend annually, which translates to a 1.29% yield on current prices.
Its dividend payouts have increased at a 16.7% CAGR over the past three years and a 13.7% CAGR over the past five years. Also, it has a record of 11 consecutive years of dividend growth.
For the fiscal first quarter that ended March 31, 2023, ELV’s total revenue increased 10.7% year-over-year to $42.17 billion. Its total operating gain rose 16.6% year-over-year to $2.83 billion in the same period. In addition, the company’s adjusted net income came in at $2.27 billion and $9.46, up 13.3% and 15.5% year-over-year, respectively.
Street expects ELV’s EPS and revenue for the second quarter (ending June 30, 2023) to increase 9.5% and 7.7% year-over-year to $8.80 and $41.45 billion, respectively. Moreover, it has an impressive earnings history, as it surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock has lost marginally over the past five days to close the last trading session at $455.01.
ELV’s POWR Ratings reflect this promising outlook. It has an overall rating of A, 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.
Also, it has a B grade for Growth, Value, Stability, Sentiment, and Quality. Out of 10 stocks in the A-rated Medical - Health Insurance industry, it is ranked #2.
Click here to see ELV’s rating for Momentum.
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 declared a dividend of $0.885 per share, payable to stockholders 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 0.69% 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.
In the same month, HUM announced an additional $40 million investment to increase the supply of affordable housing. This investment is part of HUM’s Bold Goal initiative to improve the health and well-being of its members by addressing social determinants of health, such as housing insecurity. The funds will 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.
The consensus revenue estimate of $26.14 billion for the second quarter (ending June 30, 2023) reflects a 10.5% year-over-year increase. The consensus EPS estimate of $8.89 for the ongoing quarter indicates a 2.6% rise from the same period last year. HUM surpassed its consensus EPS estimates in each of the four trailing quarters, which is promising.
Over the past year, the stock has gained 22.3% to close the last trading session at $513.87.
It’s no surprise that the stock has an overall A rating, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B for Growth, Value, and Sentiment. Within the same industry, it is ranked first. To see additional POWR Ratings of HUM for Momentum and Stability, click here.
Centene Corporation (CNC)
CNC is a multinational healthcare company that provides government-sponsored and commercial healthcare programs, focusing on underinsured and uninsured individuals. It also provides education and outreach programs to inform and assist members in accessing appropriate healthcare services. It operates through the Managed Care and Specialty Services segments.
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 and one of America's Best Large Employers by Forbes. It was also 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 as it continues to grow and expand its reach.
During the first quarter that ended on March 31, 2023, CNC’s total revenue increased 4.6% year-over-year to $38.89 billion. Adjusted net earnings attributable to CNC came in at $1.17 billion and $2.11 per share, up 8.2% and 15.3% 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 15.3% year-over-year to $2.04. Its revenue for the current quarter is expected to rise marginally year-over-year to $36.61 billion. Furthermore, it topped the revenue and EPS estimates in each of the trailing four quarters, which is promising.
CNC’s shares have lost 2% over the past five days to close the last trading session at $65.80.
CNC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
It has a B grade for Growth, Value, and Quality. In the same industry, it is ranked #3 of 10 stocks. Click here to see the other ratings of CNC (Momentum, Stability, and Sentiment).
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ELV shares were trading at $458.38 per share on Friday afternoon, up $3.37 (+0.74%). Year-to-date, ELV has declined -10.36%, versus a 9.97% 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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