The Fed’s aggressive rate hikes have finally started yielding results, as inflation declined in October and November. A slowdown in inflation has also led to the Fed reducing the magnitude of its rate hike to 50 basis points this month.
However, the Fed has raised its benchmark interest rates to the highest level in 15 years. Moreover, the central bank indicated that it would keep raising rates through next year with no reductions until 2024, thus fueling recession concerns.
The healthcare industry’s services and products always remain in demand regardless of economic conditions. And the inelastic demand makes healthcare stocks resilient.
Moreover, the industry’s growth is expected to be boosted by rapid technological advancements and rising investments. According to Statista, worldwide revenue in the healthcare segment is expected to grow at a CAGR of 12.3% to reach $94.07 billion by 2027.
Therefore, with the economy heading into a recession, investors could protect their portfolios by investing in quality healthcare stocks. To that end, CVS Health Corporation (CVS), Centene Corporation (CNC), and NextGen Healthcare, Inc. (NXGN) could be ideal investments now.
CVS Health Corporation (CVS)
CVS provides health services in the United States. It operates through three segments: Health Care Benefits, Pharmacy Services, and Retail/LTC.
Over the last three years, CVS’ dividend payouts have grown at a 3.2% CAGR. Its four-year average dividend yield is 2.78%, and its forward annual dividend of $2.42 per share translates to a 2.48% yield. It paid a quarterly dividend of $0.55 per share on November 1, 2022.
On September 5, 2022, CVS and Signify Health (SGFY) entered a definitive agreement under which CVS Health will acquire Signify Health. CVS Health President and CEO Karen S. Lynch said, “This acquisition will enhance our connection to consumers in the home and enables providers to address patient needs better as we execute our vision to redefine the healthcare experience. In addition, this combination will strengthen our ability to expand and develop new product offerings in a multi-payor approach.”
For the fiscal third quarter ended September 30, 2022, CVS’ total revenues increased 10% year-over-year to $81.16 billion. Its adjusted operating income increased 3.9% year-over-year to $4.23 billion. Adjusted income attributable to CVS increased 5.3% year-over-year to $2.76 billion. Moreover, its adjusted EPS came in at $2.09, representing an increase of 6.1% year-over-year.
Analysts expect CVS’ EPS and revenue for fiscal 2022 to increase 2.6% and 7.7% year-over-year to $8.62 and $314.49 billion, respectively. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 6.7% to close the last trading session at $97.60.
CVS’ strong fundamentals are reflected in its POWR Ratings. 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.
It is ranked first out of 4 stocks in the B-rated Medical - Drug Stores industry. It has an A grade for Growth and a B for Stability and Sentiment.
We have also given CVS grades for Value, Momentum, and Quality. Get all the CVS ratings here.
Centene Corporation (CNC)
CNC operates as a multi-national healthcare enterprise that provides programs and services to underinsured and uninsured individuals. It operates through two segments, Managed Care and Specialty Services.
On November 17, 2022, Evolent Health, Inc. (EVH) announced its definitive agreement to acquire NIA (Magellan Specialty Health), the specialty benefit management organization owned by CNC. CNC’s Chief Executive Officer, Sarah London, commented, "By combining Magellan Specialty Health with Evolent, which is also a trusted strategic partner, Centene will have access to a broad and integrated portfolio of value-based specialty solutions across more of Centene's geographies and lines of business."
CNC’s total revenues increased 10.7% year-over-year to $35.87 billion for the third quarter ended September 30, 2022. The company’s adjusted net earnings increased 1.3% year-over-year to $755 million. In addition, its adjusted EPS came in at $1.30, representing a 3.2% increase from the prior-year quarter.
CNC’s EPS for the quarter ending March 31, 2023, is expected to increase 8.1% year-over-year to $1.98. Its revenue for the quarter ending December 31, 2022, is expected to increase 8.6% year-over-year to $35.37 billion. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. The stock has gained 3.7% over the past six months to close the last trading session at $80.31.
It is no surprise that CNC has an overall rating of A, which translates to a Strong Buy in our proprietary POWR Ratings system. Within the A-rated Medical - Health Insurance industry, it is ranked #6 out of 11 stocks. The company has a B grade for Value and Quality.
Click here to see the additional ratings of CNC for Growth, Momentum, Stability, and Sentiment.
NextGen Healthcare, Inc. (NXGN)
NXGN provides healthcare technology solutions, offering clinical care solutions, financial solutions, patient engagement solutions, integrated clinical care, financial solutions, interoperability solutions, data and analytics solutions, and value-based care solutions.
On November 30, 2022, NXGN announced it had signed a definitive agreement to acquire TSI Healthcare. The acquisition is expected to contribute approximately $10 to 12 million of revenue in the remaining four months of fiscal 2023.
It will be accretive to adjusted EBITDA and cash flow within a year. NXGN’s president and chief executive officer, David Sides, believes that this acquisition enables NXGN to expand its presence in key specialties, including rheumatology, pulmonology, and cardiology.
NXGN’s total revenues for the fiscal second quarter ended September 30, 2022, increased 6.8% year-over-year to $159.44 million. Its income from operations increased 217.6% year-over-year to $9.29 million. Its net income increased 301.2% year-over-year to $13.62 million. In addition, its EPS came in at $0.20, representing a 300% increase from the prior-year quarter.
Analysts expect NXGN’s EPS and revenue for the quarter ending December 31, 2022, to increase 14.5% and 7.92% year-over-year to $0.27 and $161.58 million, respectively. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters. The stock has gained 7.3% year-to-date to close the last trading session at $19.09.
NXGN’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, translating to a Buy in our proprietary rating system. Within the Medical - Services industry, NXGN is ranked #8 out of 77 stocks. The company has an A grade for Growth and a B for Quality.
Click here to see the POWR Ratings of NXGN for Value, Momentum, Stability, and Sentiment.
CVS shares were trading at $95.66 per share on Friday morning, down $1.94 (-1.99%). Year-to-date, CVS has declined -5.18%, versus a -18.40% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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