The healthcare industry’s prospects look promising thanks to the growing demand for quality treatment, rising healthcare expenditures and technological advancements. So, quality healthcare stocks The Cigna Group (CI), UnitedHealth Group Incorporated (UNH) and Elevance Health, Inc. (ELV) could be wise additions to your portfolio now.
Before diving deeper into the fundamentals of these stocks, let’s discuss why the healthcare industry is well-positioned for growth.
According to Statista, the worldwide pharmaceuticals market is predicted to grow at a 5.8% CAGR to reach $1.48 trillion by 2028. Oncology drugs are the largest segment, with a forecasted market volume of $188.20 billion in 2023.
The global health insurance market is projected to grow at a CAGR of 6% until 2028. This increase can be attributed to various factors, including increased knowledge of the significance of health insurance, rising healthcare expenses, and increasing global demand for quality healthcare services.
Investors’ interest in healthcare stocks is evident from the iShares Global Healthcare ETF (IXJ) 6% returns over the past year.
Considering these conducive trends, let’s look at the fundamentals of the three Medical - Health Insurance stock picks, beginning with number 3.
Stock #3: The Cigna Group (CI)
CI provides insurance and related services in the United States. It operates through Evernorth Health Services and Cigna Healthcare segments. The company also offers permanent insurance contracts for financing employer-paid benefits.
CI’s trailing-12-month levered FCF margin of 7.48% is significantly higher than the 0.26% industry average. Its trailing-12-month EBIT margin of 4.29% is significantly higher than the 0.15% industry average.
CI has paid dividends for 33 consecutive years. Over the last three years, CI’s dividend payouts have grown at 393.6% CAGR. CI’s four-year average dividend yield is 0.94%. Its forward annual dividend of $4.92 translates to a 1.60% yield.
CI’s adjusted revenues for the fiscal second quarter that ended June 30, 2023, increased 7% year-over-year to $48.62 billion. The company’s adjusted income from operations amounted to $1.82 billion. Also, its EPS rose marginally year-over-year to $4.92.
The consensus revenue estimate of 191.77 billion for the year ending December 2023 represents a 6.2% increase year-over-year. Its EPS is expected to grow 6.6% year-over-year, reaching $24.80 for the same period. It has surpassed EPS estimates in three of four trailing quarters. CI’s shares have gained 19.9% over the past six months to close the last trading session at $306.78.
CI’s POWR Ratings reflect this promising outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CI also has a B grade for Value, Stability and Quality. It is ranked #6 out of 11 stocks in the A-rated Medical - Health Insurance industry. Click here to see the additional POWR Ratings for Growth, Sentiment and Momentum for CI.
Stock #2: UnitedHealth Group Incorporated (UNH)
UNH is a diversified healthcare company in the U.S., operating through four segments: UnitedHealthcare, OptumHealth, OptumInsight, and OptumRx.
On October 5, 2023, UNH disclosed that over 4.4 million employees had chosen to include UNH’s Surest health plan in their 2024 options. Remarkably, 1 in 6 of UNH’s national account clients embraced Surest, signifying its rapid ascension as the swiftest growing plan within UNH’s commercial portfolio.
The surge in adoption could benefit UNH by bolstering its market presence and enhancing revenue streams. Also, the widespread acceptance of Surest reflects its appeal and the trust employers place in UNH’s offerings. Additionally, this growth underscores UNH’s competitive advantage in the industry.
UNH’s trailing-12-month asset turnover ratio of 1.37x is 261.7% higher than the industry average of 0.38x. Its trailing-12-month levered FCF margin of 6.40% is significantly higher than the industry average of 0.26%.
UNH has paid dividends for 20 consecutive years. Over the last three years, UNH’s dividend payouts have grown at 14.9% CAGR. UNH’s four-year average dividend yield is 1.33%. Its forward annual dividend of $7.52 translates to a 1.43% yield.
UNH’s total revenues for the third quarter 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. The company’s adjusted net earnings attributable to UnitedHealth Group common shareholders rose 11.7% year-over-year to $6.14 billion.
Also, its adjusted EPS came in at $6.56, representing an increase of 13.3% year-over-year.
Street expects UNH’s revenue to increase 13.7% year-over-year to $368.56 billion for the year ending December 2023. Its EPS is expected to grow 12.4% year-over-year, reaching $24.95 for the same period. It has surpassed EPS estimates in all four trailing quarters. Shares of UNH have gained 8.3% over the past nine months to close the last trading session at $527.03.
UNH’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #5 in the same industry. It has a B grade for Growth, Stability, Sentiment and Quality. To see additional UNH ratings for Value and Momentum, click here.
Stock #1: Elevance Health, Inc. (ELV)
ELV operates as a health benefits company through four segments: Commercial & Specialty Business; Government Business; CarelonRx; and Other. It serves individuals through its medical, digital, pharmacy, behavioral, clinical, and care solutions portfolio.
ELV’s trailing-12-month levered FCF margin of 3.58% is significantly higher than the 0.26% industry average. Its trailing-12-month EBIT margin of 5.32% is significantly higher than the 0.15% industry average.
ELV has paid dividends for 11 consecutive years. Over the last three years, ELV’s dividend payouts have grown at 16.2% CAGR. ELV’s four-year average dividend yield is 1.13%. Its forward annual dividend of $5.92 translates to a 1.30% yield.
For the fiscal third quarter that ended September 30, 2023, ELV’s total revenue increased 7.3% year-over-year to $42.85 billion. Its total operating revenue rose 7.2% from the year-ago value to $42.48 billion in the same period. In addition, the company’s adjusted net income came in at $2.13 billion and $8.99, up 17.6% and 20.5% year-over-year, respectively.
Analysts expect ELV’s revenue to increase 9.1% year-over-year to $169.80 billion for the year ending December 2023. Its EPS is expected to grow 13.8% year-over-year, reaching $33.07 for the same period. It has surpassed EPS estimates in all four trailing quarters. The stock has gained marginally over the past month to close the last trading session at $453.78.
It’s no surprise that ELV has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has a B grade for Value, Stability, Sentiment and Quality. It is ranked first in the Medical - Health Insurance industry.
Beyond what is stated above, we’ve also rated ELV for Growth and Momentum. Get all ELV ratings here.
What To Do Next?
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UNH shares were unchanged in premarket trading Monday. Year-to-date, UNH has gained 0.56%, versus a 10.96% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
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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