TD Cowen backs insurer, rehab and dialysis stocks as healthcare Q3 top picks
Investing.com -- Ahead of third-quarter earnings, an analyst preview of US healthcare facilities and managed care names flags Elevance Health, Encompass Health and DaVita as top picks, even as hospital fundamentals remain challenged.
Elevance Health
Rated “buy” with a price target of $465, Elevance is expected to beat third-quarter consensus and raise full-year 2026 guidance.
Management said third-quarter EPS was tracking ahead of its prior outlook and that July and August trends support guidance. The analysts model 2026 EPS of $27.25 against the current "at least" $27 guide, which they say may prove conservative.
They also see 2027 EPS of $30.02, up 14% from the roughly $26 jumping-off point, and cite the company’s line-of-business diversification and positive updates across Medicare Advantage, Medicaid, Commercial/ACA and Carelon. One caution: consensus MLR ex-prior-year development is among the least conservative in the group.
Encompass Health
Rated “buy” with a price target of $140, Encompass is described as one of the cleanest stories in the coverage, with a strong organic growth outlook and no exposure to Medicaid or ACA exchange headwinds.
The analysts see a strong inpatient rehab demand backdrop and room for upside on net revenue per discharge, with continued expense management that could drive an EBITDA beat.
Recent management meetings raised their confidence that second-half results will be in line to above consensus, with same-store discharge growth expected to accelerate, more significantly in the fourth quarter. The risk is that long positioning is more crowded than ahead of the second quarter.
DaVita
Rated “buy” with a price target of $220, DaVita was upgraded to Buy on August 7. The analysts say its market position is improving against its largest competitor and that it is poised to take share.
MOTheR trial results open another care modality that should help volume growth without requiring material equipment replacement. The call is out of consensus, with 55% of the Street rating the stock Hold or Sell.
The analysts estimate third-quarter operating income of $540 million versus consensus of $542 million, and will watch for commentary on ACA exchange headwinds, the biggest risk to the quarter and full-year guidance.