The healthcare industry has witnessed strong demand over the past two years due to increased health awareness, growing chronic diseases, and the rapidly aging population. Moreover, the COVID-19 pandemic has led to significant digitization of the industry, positioning it for solid long-term growth.
Furthermore, an increased healthcare expenditure should bode well for the industry. Health care spending in the United States is expected to reach approximately $6.20 trillion by 2028, which accounts for one-fifth of the nation’s gross domestic profit.
As the stock market volatility is not expected to subside anytime soon, investors should opt for healthcare stocks to hedge growing market risks, given the industry's inelastic demand. The investors' bullish sentiment surrounding the sector is evident from Vanguard Health Care ETF’s (VHT) 2.5% gains over the past month.
Amid the challenging market conditions, we think it could be wise to add quality healthcare stocks CVS Health Corporation (CVS), NextGen Healthcare, Inc. (NXGN), and Centene Corporation (CNC) to your portfolio.
CVS Health Corporation (CVS)
CVS provides health services in the United States. The company operates through four segments: Pharmacy Services; Retail/LTC; Health Care Benefits; and Corporate/Other. CVS offers prescription drugs, traditional and consumer-directed health insurance products, pharmacy benefit management solutions, and consumer health and beauty products.
The company operates over 9,900 retail locations, 1,200 MinuteClinic locations, online pharmacy websites, and onsite pharmacies.
In February, CVS Pharmacy, the retail division of CVS, launched six new innovative home health care products. The new CVS Health by Michael Graves Design features a wide range of products, including comfort grip chairs, easy-fold travel walkers, convertible shower chairs, and 3-in-1 comfort commodes.
The new launch of products is the company's extension of the exclusive CVS Health product line, extending its customer reach and boosting sales.
In the fiscal 2022 first quarter ended March 31, 2022, CVS' total revenues increased 11.2% year-over-year to $76.83 billion. Its adjusted operating income grew 6.6% year-over-year to $4.48 billion. The company’s adjusted income attributable to CVS and adjusted earnings per share came in at $2.94 billion and $2.22, up 9.1% and 8.8% from the prior-year period, respectively.
In addition, net cash provided by operating activities rose 23.2% year-over-year to $3.56 billion.
Analysts expect CVS’ EPS to grow 2.8% from the prior-year period to $2.02 for the fiscal 2022 third quarter ending September 2022. The $77.14 billion consensus revenue estimate for the ongoing quarter represents a 4.5% rise year-over-year. The company has surpassed the consensus EPS and revenue estimates in each of the trailing four quarters.
The stock has gained 14.7% over the past year to close the last trading session at $95.53.
CVS' POWR Ratings reflect this promising outlook. It has an overall grade of A, equating to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CVS has a grade of B for Value, Stability, and Sentiment. Within the Medical - Drug Stores industry, it is ranked #1 of 5 stocks. Click here to see additional POWR Ratings (Momentum, Quality, and Growth) for CVS.
NextGen Healthcare, Inc. (NXGN)
NXGN provides healthcare technology solutions in the United States. The company offers clinical care solutions, including NextGen Enterprise HER, patient engagement solutions such as NextGen Virtual Visits, integrated clinical care and financial solutions consisting of NextGen Office, and data and analytics solutions, including NextGen Health Data Hub.
NXGN serves accountable care organizations, managed service organizations, independent physician associations, ambulatory care centers, and community health centers through a direct sales force and reseller channel.
On July 27, NXGN expanded its long-term relationship with InstaMed, a J.P. Morgan company, to simplify payment processing through NextGen Pay powered by InstaMed. This solution expands payment options and enables healthcare practices to automate collections and manage payments in one system. The new solution is expected to accelerate the company’s growth and profitability.
On May 26, NXGN launched NextGen Health Data Hub Insights, a modern and extensible data warehouse and custom analytics solution. “Health Data Hub Insights gives our clients even greater flexibility in how they use community data assets to develop new clinical and administrative insights,” said Srinivas Velamoor, Chief Growth & Strategy Officer for NXGN.
“This is fundamental to our goal of delivering comprehensive solutions that improve patient care and enhance practice performance,” he added.
NXGN's total revenue increased 4.9% year-over-year to $146.10 million in the fiscal 2022 first quarter ended June 30, 2022. Its recurring revenue rose 5.6% from the year-ago value to $139.80 million, and its subscription services revenue came in at $42.80 million, up 11.8% year-over-year.
The consensus revenue estimate of $158.14 million for the fiscal 2022 third quarter (ending December 2022) represents an increase of 5.6% from the previous quarter in 2021. The same quarter's $0.27 consensus EPS estimate indicates a 14.5% year-over-year rise. Furthermore, it has surpassed the consensus revenue estimates in each of the trailing four quarters.
The stock has gained 3.9% over the past year to close the last trading session at $16.90.
NXGN's POWR Ratings reflect this strong outlook. The stock has an overall A grade, translating to a Strong Buy in our proprietary rating system.
NXGN has a B grade for Quality, Value, Growth, and Stability. Within the Medical-Services industry, it is ranked #3 of 83 stocks. Click here to see NXGN's additional POWR Ratings (Sentiment and Momentum).
Centene Corporation (CNC)
CNC operates as a multi-national healthcare enterprise that offers programs and services to under-insured and uninsured individuals in the United States. The company operates through Managed Care; and Specialty Services segments. It offers health plan coverage through government subsidized programs. In addition, it provides pharmacy benefits management services.
This week, CNC signed a definitive agreement to sell its Spanish and Central European businesses to Vivalto Santé. Sarah London, CNC’s CEO, said, “This transaction represents another significant milestone in our value creation plan and ongoing portfolio review.”
“We are pleased to have found a leading European healthcare partner in Vivalto Santé, who we believe is best positioned to drive growth and make additional investments in Ribera Salud, Torrejón, and PDG, so they can continue providing high-quality care for patients across Europe.”
In the fiscal 2022 second quarter ended June 30, 2022, CNC's total revenues grew 15.8% year-over-year to $35.90 billion. Its adjusted net earnings and EPS came in at $1.04 billion and $1.77, registering increases of 41.4% and 41.6% from the prior-year period, respectively. As of March 31, 2022, the company had cash and cash equivalents of $13.44 billion and maintained current assets of $32.41 billion.
Analysts expect CNC’s revenue for the fiscal year 2022 (ending December 2022) to come in at $143.40 billion, representing a 13.8% rise year-over-year. Also, Street expects the company's EPS for the current year to come in at $5.67, representing a growth of 10% year-over-year. It’s no surprise that the company has surpassed the consensus EPS estimates in each of the trailing four quarters.
CNC’s shares have gained 11.7% year-to-date and 32.4% over the past year to close the last trading session at $92.35.
CNC's strong fundamentals are reflected in its POWR Ratings. It has an overall A grade, equating to a Strong Buy in our proprietary rating system.
CNC has a B grade for Value, Growth, Quality, and Sentiment. Within the A-rated Medical-Health Insurance industry, it is ranked #3 of 11 stocks. Click here to see CNC's additional POWR Ratings (Stability and Momentum).
CVS shares were trading at $95.79 per share on Friday morning, up $0.26 (+0.27%). Year-to-date, CVS has declined -5.62%, versus a -12.99% 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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