Interest rate hikes by the Federal Reserve to contain the high inflation have been driving recession fears, dampening investor sentiment. However, healthcare is among a few sectors with demand and margins resistant to inflation and recession.
Rising demand for healthcare solutions with increasing chronic diseases, an aging population, growing health awareness, and rapidly evolving digital health technologies are expected to boost the industry’s growth. Furthermore, an increase in healthcare expenditures should bode well for the sector.
Healthcare spending in the United States is expected to reach $6.2 trillion by 2028, accounting for nearly one-fifth of the nation’s gross domestic product.
Given an inelastic demand for healthcare products and services, healthcare stocks present very safe and stable opportunities for investors amid the ongoing economic headwinds. Investors’ interest in this space is evident from the Vanguard Health Care ETF’s (VHT) 1.4% gains over the past month.
Thus, quality healthcare stocks Humana Inc. (HUM), UnitedHealth Group Incorporated (UNH), and Elevance Health Inc. (ELV), which are well-positioned to withstand the current market fluctuations, are ideal investments now.
Humana Inc. (HUM)
HUM operates primarily as a health and well-being company. The company operates through three segments: Retail; Group and Specialty; and Healthcare Services. The company provides medical and supplemental benefit plans. In addition, it offers commercial fully-insured medical and specialty health insurance benefits, administrative services, and military services.
On May 16, HUM’s CenterWell Senior Primary Care and Welsh, Carson, Anderson & Stowe (“WCAS”) established a second joint venture to expand access to value-based primary care clinics for Medicare patients. The joint venture will deploy up to $1.2 billion of committed capital, and the company expects to expand its geographic footprint and serve more patients nationwide.
On June 9, HUM announced that its value-based home care subsidiary, onehome, would expand into Virginia. With this expansion, the company expects to leverage its growth in home care capabilities to cater to the ever-increasing demand for home care solutions. This puts HUM on track to provide 50% of its Medicare Advantage members access to its value-based home care model within five years.
HUM’s adjusted revenues increased 15.3% year-over-year to $23.72 billion in the fiscal 2022 second quarter ended June 30, 2022. During the same period, its operating cash flow improved 166.4% year-over-year to $959 million. Its adjusted pretax income amounted to $1.43 billion, up 26.7% year-over-year.
The company’s adjusted earnings per share came in at $8.67, registering an increase of 25.8% from the prior-year period.
Analysts expect HUM’s EPS to grow 28.8% year-over-year to $6.22 for its fiscal 2022 third quarter, ending September 2022. The $22.85 billion consensus revenue estimate for the ongoing quarter represents a 10.4% rise from the same period in 2021.
The company has an impressive earnings surprise history, as it has surpassed the consensus EPS estimates in each of the trailing four quarters.
HUM has gained 11.7% over the past six months and 17.1% over the past year to close the last trading session at $487.74.
HUM’s POWR Ratings reflect this stable outlook. The company has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
HUM is also rated B in Value, Sentiment, and Quality. Within the A-rated Medical - Health Insurance industry, it is ranked #6 of 11 stocks. To see additional POWR Ratings for Growth, Stability, and Momentum for HUM, click here.
UnitedHealth Group Incorporated (UNH)
UNH is a diversified healthcare company. The company operates through four segments: Optum Health; OptumInsight; Optum Rx; and UnitedHealthcare. It offers consumer-oriented health benefit plans and services, software and information products, health care coverage, and well-being services. Additionally, UNH provides access to networks of care provider specialists, consumer engagement, and financial services.
In June, the UNH unit agreed on an all-cash deal to acquire UK-based health technology company Emis Group Plc (EMISG) for GBP 1.24 billion ($ 1.49 billion). Since EMIS has a long track record of delivering robust technology solutions to support the NHS, this deal is expected to grow UNH’s revenue while increasing geographical diversification.
For the fiscal 2022 second quarter ended June 30, 2022, UNH’s revenues increased 12.6% year-over-year to $80.33 billion. The company’s earnings from operations rose 19.3% from the year-ago value to $7.13 billion.
In addition, its net earnings and adjusted earnings per share attributable to UNH common shareholders came in at $5.20 billion and $5.57, up 18.9% and 18.5%, respectively, year-over-year.
Analysts expect UNH's revenue for the fiscal year 2022 (ending December 2022) to come in at $322.19 billion, representing a 12% rise from the last year. Also, Street expects the company's EPS for the current year to come in at $21.86, representing an increase of 14.9% year-over-year.
The company has an impressive earnings surprise history since it has exceeded consensus EPS estimates in each of the trailing four quarters.
UNH’s shares have gained 7.9% over the past six months and 30.8% over the past year, respectively, to close the last trading session at $537.26.
UNH's POWR Ratings reflect a strong outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. It has a grade of A for Sentiment and B for Quality, Growth, and Stability. In the A-rated Medical - Health Insurance industry, it is ranked #4 of 11 stocks.
Beyond what we’ve stated above, we have also given UNH grades for Value and Momentum. Get all the UNH ratings here.
Elevance Health Inc. (ELV)
ELV, formerly Anthem Inc., is focused on holistic health through all stages of life. Its focus areas include advancing health equity, maternal health, behavioral health, access to evidence-based medical therapy, and providing digitally enabled healthcare. It operates through four segments: Carelon; Wellpoint; Anthem Blue Cross; and Blue Shield.
Earlier this month, ELV and Aledade, an innovative primary care physician enablement company, announced a partnership that will help enhance the consumer experience and health outcomes for those seeking services from independent primary care practices.
Helping independent primary care physicians transition to value-based care is expected to lower costs while improving health outcomes and increasing the company's market penetration.
ELV’s operating revenue increased 15.6% year-over-year to $38.48 billion in the second quarter ended June 30, 2022. The company’s operating gain rose 13.7% to $2.37 billion. Consequently, the adjusted net income increased 14.4% from the prior-year period to $8.04 per share.
The consensus EPS estimate of $28.82 for the fiscal year 2022 (ending December 2022) represents a 10.9% improvement year-over-year. The consensus revenue estimate of $154.42 billion for the ongoing year represents a 12.8% increase from the last year.
The company has an impressive earnings surprise history, as it has topped the consensus EPS estimates in each of the trailing four quarters.
ELV has gained 3.4% over the past six months and 28.6% over the past year to close the last trading session at $483.97.
ELV’s strength is reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our POWR Ratings system. ELV has a B grade for Growth, Value, Stability, Sentiment, and Quality.
Perhaps it’s not a surprise that among the 11 stocks in the same industry, it is ranked #1. Click here to see the POWR Rating for ELV’s Momentum.
HUM shares fell $1.00 (-0.21%) in after-hours trading Wednesday. Year-to-date, HUM has gained 5.14%, versus a -10.92% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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