As populations age and chronic diseases increasingly impact individuals, the need for sophisticated pharmaceuticals, healthcare technologies, and progressive treatments is projected to surge. Amid amplifying healthcare costs surpassing inflation, it catalyzes a thriving environment for the health insurance industry, given its vital role in reducing financial risks.
Against this backdrop, it may be opportune to turn attention to buy-worthy health insurance stocks UnitedHealth Group Incorporated (UNH), Humana Inc. (HUM), and Centene Corporation (CNC), which could be solid additions to your watchlist.
The healthcare industry faces increasing expenses, driven by surging drug costs and the prevalence of chronic diseases. This sector persistently demonstrates robust potential due to its indispensable offerings of products and services. Coupled with ongoing technological innovation and heightened health awareness among consumers, these elements are poised to drive the industry's growth.
According to the Centers for Medicare and Medicaid Services, U.S. healthcare expenditure is expected to grow 5.1% annually, accounting for an estimated 19.6% share of the country's Gross Domestic Product (GDP) by 2030. Global health expenditure is expected to reach $1,700 per capita in 2026.
Future population patterns also hold significant implications for the healthcare industry. Projections from the Congressional Budget Office (CBO) suggest that between 2023 and 2053, an average of 73 million people will enter the age bracket of 65 or older. This demographic shift implies an increase in individuals generally eligible for Social Security and Medicare and a relative decrease in active employment.
Health insurance remains a vital safeguard against financial hardship, especially as medical costs increase yearly. The global health insurance market, expected to reach $4.37 trillion by 2030, growing at a 7.3% CAGR, is primed for steady expansion due to increased awareness regarding the advantages of health insurance and the projected increase in the elderly population.
Considering these conducive trends, let's look at the fundamentals of the three Medical – Health Insurance stocks, starting with number 3.
Stock #3: UnitedHealth Group Incorporated (UNH)
UNH is a diversified healthcare company in the U.S., operating through four segments: UnitedHealthcare; OptumHealth; OptumInsight; and OptumRx.
On November 9, UNH’s Optum Rx announced additional actions to make insulin more affordable, moving several rapid-, short- and long-acting insulins to tier one, ensuring consumers have access to affordable medications and are protected from the high prices set by drug manufacturers.
From January 1, 2024, UNH will place eight preferred insulin products on tier one of standard commercial formularies, limiting out-of-pocket spending to $35 or less.
On November 8, UNH’s board of directors authorized the payment of a cash dividend of $1.88 per share of UNH common stock, payable to the shareholders on December 12. UNH has paid dividends for 20 consecutive years.
Its annualized dividend rate of $7.52 per share translates to a dividend yield of 1.39% on the current share price. Its four-year average yield is 1.33%. UNH’s dividend payments have grown at CAGRs of 14.9% and 16.4% over the past three and five years, respectively.
In terms of forward GAAP P/E, UNH is trading at 22.76x, 15.8% lower than the industry average of 27.05x. The stock’s forward EV/Sales multiple of 1.45 is 54.4% lower than the industry average of 3.17.
UNH’s trailing-12-month asset turnover ratio of 1.37x is 259.6% higher than the industry average of 0.38x, while its trailing-12-month EBITDA margin of 9.59% is 88.8% higher than the industry average of 5.08%.
UNH’s total revenues for the fiscal third quarter that ended September 30, 2023, increased 14.2% year-over-year to $92.36 billion. Its total earnings from operations rose 14.3% year-over-year to $8.53 billion.
For the same quarter, adjusted net earnings attributable to UNH common shareholders and adjusted earnings per share stood at $6.14 billion and $6.56, up 11.7% and 13.3% from the prior-year quarter, respectively. As of September 30, 2023, its total current assets stood at $91.91 billion, compared to $69.07 billion as of December 31, 2022.
Street expects UNH’s revenue and EPS in the fiscal fourth quarter ending December 2023 to increase 11.5% and 12.5% year-over-year to $92.28 billion and $6.01, respectively. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 10% over the past six months to close the last trading session at $540.46. Over the past three months, it gained 5.8%.
UNH’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has a B grade for Stability, Sentiment, and Quality. It is ranked #6 out of 11 stocks in the A-rated Medical – Health Insurance industry.
To see additional UNH ratings for Growth, Value, and Momentum, click here.
Stock #2: Humana Inc. (HUM)
HUM operates 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.
On November 9, HUM completed its public offering of $1.35 billion in aggregate principal amount of senior notes. These senior notes comprise $500 million of the company’s 5.75% senior notes, due 2028, at 99.83% of the principal amount, and $850 million of the company’s 5.95% senior notes, due 2034, at 98.525% of the principal amount.
On the same day, HUM’s CenterWell Senior Primary Care celebrated the opening of four new senior-focused primary care centers in Indianapolis in 2023 and 2024, marking the company’s debut in the city, giving local seniors access to HUM’s personalized, care-team approach to health care. This should bode well for the company.
Its annualized dividend rate of $3.54 per share translates to a dividend yield of 0.71% on the current share price. Its four-year average yield is 0.63%. HUM’s dividend payments have grown at CAGRs of 12.4% and 12.6% over the past three and five years, respectively.
In terms of forward EV/Sales, HUM is trading at 0.57x, 82.2% lower than the industry average of 3.17x. The stock’s forward Price/Sales multiple of 0.60 is 82.9% lower than the industry average of 3.47.
HUM’s trailing-12-month asset turnover ratio of 1.92x is 403.3% higher than the industry average of 0.38x, while its trailing-12-month cash per share of $123.04 is significantly higher than the industry average of $1.20.
In the fiscal third quarter that ended September 30, 2023, HUM’s adjusted revenues and income from operations increased 18.2% and 2.9% year-over-year to $25.53 billion and $1.21 billion, respectively.
For the same quarter, net income attributable to HUM stood at $832 million, while adjusted EPS came at $7.78, up 6.4% from the prior-year quarter. As of September 30, 2023, its total current assets stood at $38.25 billion, compared to $26.18 billion as of December 31, 2022.
Street expects HUM’s revenue and EPS for the fiscal fourth quarter ending December 2023 to increase 14% and 44% year-over-year to $25.57 billion and $2.33, respectively. The company surpassed consensus EPS estimates in each of the trailing four quarters and revenue estimates in three of the trailing four quarters.
The stock has gained 2.9% over the past five days to close the last trading session at $501.95. Over the past three months, it has gained 1%.
HUM’s POWR Ratings reflect strong prospects. It has an overall rating of A, translating to a Strong Buy in our proprietary system.
HUM has an A grade for Growth and a B for Value and Quality. Within the same industry, it is ranked #5.
Click here to see HUM’s ratings for Momentum, Stability, and Sentiment.
Stock #1: 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 November 9, CNC’s Peach State Health Plan partnered with Pyx Health – a leading healthcare technology company. The collaboration is aimed at addressing issues of social isolation, loneliness, and depression among the young populace in Georgia. Pyx's innovative technology platform and human support program detect loneliness and connect users with critical resources that enhance mental health and overall life quality.
Through the partnership, Pyx will provide Peach State Health Plan members access to aid frameworks, including round-the-clock local and national crisis hotlines, health plan facilities, community resources, and relevant, adolescent-centered content like dating safety and tackling cyberbullying, to support, enlighten, and safeguard the younger demographic.
In terms of forward EV/Sales, CNC is trading at 0.27x, 91.6% lower than the industry average of 3.17x. The stock’s forward Price/Sales multiple of 0.26 is 92.5% lower than the industry average of 3.47.
CNC’s trailing-12-month asset turnover ratio of 1.68x is 341.5% higher than the industry average of 0.38x, while its trailing-12-month cash per share of $34.03 is significantly higher than the industry average of $1.20.
In the fiscal third quarter that ended September 30, 2023, CNC’s total revenues and earnings from operations increased 6.1% and 54.4% year-over-year to $38.04 billion and $735 million, respectively.
For the same quarter, its adjusted net earnings and adjusted EPS stood at $1.08 billion and $2, up 43.3% and 53.8% from the prior-year quarter, respectively. For the nine months that ended September 30, 2023, cash, cash equivalents, and restricted cash and cash equivalents increased 21.3% year-over-year to $18.45 billion.
Street expects CNC’s revenue in the fiscal fourth quarter ending December 2023 to increase 1.4% year-over-year to $36.05 billion. Its EPS is expected to be $0.44. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 9.5% over the past three months to close the last trading session at $73.23. Over the past six months, it gained 9%.
It’s no surprise that CNC has an overall rating of A, which translates to a Strong Buy in our proprietary POWR Ratings system.
It has an A grade for Growth and a B for Value and Quality. Within the same industry, it is ranked first.
Beyond what we have highlighted above, one can see CNC’s additional ratings (Momentum, Stability, and Sentiment) here.
What To Do Next?
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UNH shares were unchanged in premarket trading Wednesday. Year-to-date, UNH has gained 3.12%, versus a 18.64% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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