Managed-Care Stocks Looking Healthy; Where's the Reform Fallout? - Barron's
Tweet
Share
E-mail
Get Alerts UNH Hot Sheet
Price: $393.93 -0.43%
Rating Summary:
31 Buy, 7 Hold, 1 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 7 | Down: 16 | New: 37
Rating Summary:
31 Buy, 7 Hold, 1 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 7 | Down: 16 | New: 37
Join SI Premium – FREE
Despite initial concern, fears of what the health-care overhaul would do to health-care stocks hasn't surfaced.
Although the AMEX Morgan Stanley Healthcare Index has gained about 11 percent since the start of 2011, Barron's believes investors still have a chance to unlock gains in three large-cap managed-care stocks: UnitedHealth Group (NYSE: UNH), Coventry Health Care (NYSE: CVH) and Humana (NYSE: HUM).
All three trade within a 10.9-11x P/E range and both UnitedHealth and Coventry Health are growing long-term earnings above 10 percent while Humana is growing at about 6 percent. Thompson Reuters calls the current valuation "cheap," noting, "They have solid fundamentals and there are a number of upside catalysts."
Profits for the companies depend on the spread between premiums and medical costs, expected to tighten in 2011 after the U.S. government set a requirement that health plans must spend on patients' medical bills.
Goldman Sachs, cited in the Barron's article, believes, following the decline of medical-utilization rates last summer, the trend may take until 2013 to experience a recovery.
Insurers are also increasing premiums, which will be a boon by 2014 when all Americans will be required to have insurance.
Additionally, Barron's notes M&A in the sector, with health care companies looking to expand into other businesses.
These developments could mean a 10 percent annual increase in earnings for the companies.
UnitedHealth derives 20 percent of profits from "health services" business, and it recently quadrupled its dividend to $0.125 per quarter. Shares are also up 40 percent since the start of 2011.
Barron's said Coventry is the smallest on the list, with just 4.5 million members and a market-cap of $5 billion. Coventry is a cash machine, according to Barron's. The company should have $1 billion of spendable cash on the books, and generate about $500 - $600 million of free cash flow over the next several years. Coventry is up 30 percent so far in 2011.
Finally, Humana is making strong moves to diversify its business, closing a recent $800 million deal in December for Concentra. But it's bread-and-butter is still medicare health plans purchased by seniors, arguably the largest growing segments of the U.S. population. American's over the age of 65 are expected to double to 4 million by 2015, setting up a potential surge in enrollments. Humana has also had quite a run so far in 2011, up 45 percent to date.
Some risks to Barron's outlook include rising health-care costs as well as future premium hikes. Some also speculate the worst of the health-care reform is yet to come.
Although the AMEX Morgan Stanley Healthcare Index has gained about 11 percent since the start of 2011, Barron's believes investors still have a chance to unlock gains in three large-cap managed-care stocks: UnitedHealth Group (NYSE: UNH), Coventry Health Care (NYSE: CVH) and Humana (NYSE: HUM).
All three trade within a 10.9-11x P/E range and both UnitedHealth and Coventry Health are growing long-term earnings above 10 percent while Humana is growing at about 6 percent. Thompson Reuters calls the current valuation "cheap," noting, "They have solid fundamentals and there are a number of upside catalysts."
Profits for the companies depend on the spread between premiums and medical costs, expected to tighten in 2011 after the U.S. government set a requirement that health plans must spend on patients' medical bills.
Goldman Sachs, cited in the Barron's article, believes, following the decline of medical-utilization rates last summer, the trend may take until 2013 to experience a recovery.
Insurers are also increasing premiums, which will be a boon by 2014 when all Americans will be required to have insurance.
Additionally, Barron's notes M&A in the sector, with health care companies looking to expand into other businesses.
These developments could mean a 10 percent annual increase in earnings for the companies.
UnitedHealth derives 20 percent of profits from "health services" business, and it recently quadrupled its dividend to $0.125 per quarter. Shares are also up 40 percent since the start of 2011.
Barron's said Coventry is the smallest on the list, with just 4.5 million members and a market-cap of $5 billion. Coventry is a cash machine, according to Barron's. The company should have $1 billion of spendable cash on the books, and generate about $500 - $600 million of free cash flow over the next several years. Coventry is up 30 percent so far in 2011.
Finally, Humana is making strong moves to diversify its business, closing a recent $800 million deal in December for Concentra. But it's bread-and-butter is still medicare health plans purchased by seniors, arguably the largest growing segments of the U.S. population. American's over the age of 65 are expected to double to 4 million by 2015, setting up a potential surge in enrollments. Humana has also had quite a run so far in 2011, up 45 percent to date.
Some risks to Barron's outlook include rising health-care costs as well as future premium hikes. Some also speculate the worst of the health-care reform is yet to come.
Serious News for Serious Traders! Try StreetInsider.com Premium Free!
You May Also Be Interested In
- Marvell (MRVL) PT Raised to $225 at TD Cowen
- Klarna shares tumble on weak full-year revenue guidance
- Toll Brothers (TOL) Tops Q3 EPS by 5c, reaffirms guidance
Create E-mail Alert Related Categories
Analyst Comments, Insiders' BlogRelated Entities
Morgan Stanley, Barron's, Dividend, EarningsSign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!
