Zacks Industry Outlook Highlights UnitedHealth, The Cigna, Humana, Centene and Molina Healthcare

·11-min read

For Immediate Release

Chicago, IL – March 20, 2023 – Today, Zacks Equity Research discusses UnitedHealth Group Inc. UNH, The Cigna Group CI, Humana Inc. HUM, Centene Corp. CNC and Molina Healthcare, Inc. MOH.

Industry: HMO


The U.S. health insurance industry, referred to as Health Maintenance Organization (HMO), is likely to benefit from a solid Government business that fetches higher premiums to industry players. Contract wins, a growing customer base and a solid merger and acquisition (M&A) strategy are added tailwinds for the space.

Though technology investments are pursued to expand digital capabilities, they might often elevate costs for industry participants. Shortage of nurses is another headwind. Despite the challenges, companies like UnitedHealth Group Inc., The Cigna Group, Humana Inc., Centene Corp. and Molina Healthcare, Inc. are better placed to counter the industry downsides.

About the Industry

The Zacks HMO industry consists of entities (either private or public) that take care of subscribers' basic and supplemental health services. Companies in this space primarily assume risks and assign premiums to health and medical insurance policies. Industry participants also provide administrative and managed-care services for self-funded insurance.

Services are generally provided by a network of approved care providers (called in-network), which include primary care physicians, clinical facilities, hospitals and specialists. However, out-of-network exceptions are made during emergencies or when it is medically necessary. Health insurance plans can be availed through private purchases, social insurance or social welfare programs.

4 Trends Defining the HMO Industry Future

Continuous Technology Advancements: Owing to the ongoing digitization across every sphere of life, individuals often prefer healthcare services from the comfort of their homes. The demand for digital healthcare services is expected to remain high in the days ahead. As a result, players in the HMO space are compelled to undertake significant technology investments to stay up-to-date with the digital trend.

Digital investments for health insurers are often directed toward developing telehealth platforms and boosting operational efficiencies. This, in turn, expands digital capabilities and diversifies revenue streams of the players. However, bringing its share of worries, these investments might escalate costs and dampen the margins of health insurers.

Scarcity of Nurses: The U.S. healthcare industry has been grappling with an acute shortage of nurses and other medical personnel for quite some. As more U.S. people continue to reach retirement age, the nursing shortage will likely persist. Health insurers collaborate with hospitals, physicians and other facilities to arrange for discounted care access for plan members. This feature remains lucrative for individuals to opt for a particular health insurer's plan.

Thereby, an insufficient nursing workforce can dampen a hospital's ability to deliver quality care services to the plan members. This, in turn, can indirectly impact the customer base of health insurers. It can be problematic as the premiums of the HMO players depend, to a large extent, on healthy membership growth. According to a McKinsey report, the United States will likely see a dearth of 200,000 to 450,000 nurses within 2025. This further points toward the challenging days that await health insurers.

Growing Premiums: A well-performing Government business provides an impetus to the most vital component of a health insurer's top line —  premiums. Through this business, the insurers devise affordable health plans and extend them across several U.S. communities. These plans, integrated with some eye-catchy features, fetch federal or state contracts to the HMO players from time to time.

These contract wins boost their customer base. An aging U.S. population sounds well for health insurers as it can sustain the demand for Medicare plans (meant for 65 years and above) offered through Government business. But the continued impact of inflation can take a toll on the spending habits of consumers and infuse some uncertainty in their uninterrupted healthcare premium payments.

An Active M&A Strategy: Participants of the HMO space frequently resort to the M&A strategy to upgrade their capabilities and solidify their nationwide presence. Industry players place a keen eye on M&A strategy to increase customer base, introduce new products and services, enter new markets and delve deeper into existing ones. The primary aim behind these deals is to bring diversification benefits that differentiate an organization from its industry peers. An exciting year awaits, with respect to M&A deals, according to PwC's Global M&A Industry Trends: 2023 Outlook.

Zacks Industry Rank Hints Bearish Outlook

The group's  Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates tepid near-term prospects. The Zacks Medical-HMOs industry is housed within the broader Zacks  Medical sector. It currently carries a Zacks Industry Rank #219, which places it in the bottom 12% of more than 250 Zacks industries.

Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. The industry's positioning in the bottom 50% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate.

Despite the dismal scenario, we will present a few stocks that one can buy or retain, given their solid growth endeavors. But before that, it's worth looking at the industry's recent stock-market performance and the valuation picture.

Industry Outperforms S&P 500 & Sector

The Zacks Medical-HMO industry has outperformed the Zacks S&P 500 composite and its sector in the past year.

In the said time frame, the industry has lost 7.9% compared with the S&P 500's 14.1% decline and the Zacks Medical sector's decline of 18.6%.

Industry's Current Valuation

On the basis of the forward 12-month price-to-earnings (P/E) ratio, which is commonly used for valuing medical stocks, the industry trades at 16.84X compared with the S&P 500's 17.46X and the sector's 21.72X.

Over the past five years, the industry has traded as high as 21.49X and as low as 12.93X, with the median being at 17.93X.

5 Stocks to Keep a Close Eye On

We present five stocks from the space currently carrying a Zacks Rank #3 (Hold). Considering the current industry scenario, it might be prudent for investors to retain these stocks in their portfolio, as these are well-placed to generate growth in the long haul.

You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

UnitedHealth Group: Based in Minnesota, UnitedHealth Group benefits on the back of strong contributions from its UnitedHealthcare and Optum businesses. Several contract wins have resulted in the membership growth of UNH, which in turn, boosts its top line. It pursues an M&A strategy, which has bolstered its capabilities and extended its nationwide presence. Robust Medicare and Medicaid plans have extended UNH's access across inaccessible regions. The healthcare provider has resorted to developing telehealth services for which it has undertaken significant investments.

The Zacks Consensus Estimate for UnitedHealth Group's 2023 earnings is pegged at $24.91 per share, indicating a 12.3% rise from the year-ago reported figure. The consensus mark for current-year revenues indicates a 10.7% improvement from the year-ago actual. UNH's earnings beat estimates in each of the last four quarters, the average being 4.38%. Even though its shares have lost 6.7% in a year, solid fundamentals are likely to help shares bounce back in the days ahead.

Cigna: This Connecticut-based health insurer continues to be driven by solid performances of the Evernorth and Cigna Healthcare segments. CI has maintained a solid record of reporting average annual adjusted earnings per share growth higher than the long-term target of 6-8%. An aging U.S. population is expected to sustain solid demand for Cigna's Medicare plans. It also benefits on the back of continuous product expansions and new collaborations or contract extensions with renowned healthcare systems.

The Zacks Consensus Estimate for Cigna's 2023 earnings is pegged at $24.77 per share, suggesting 6.5% growth from the prior-year reported figure. The consensus mark for current-year revenues implies a 3.9% improvement from the year-ago actual. CI's earnings beat estimates in each of the last four quarters, the average being 9.98%. Its shares have gained 13.8% in a year.

Humana: Headquartered in Kentucky, Humana is aided by growing premium revenues from an increasing customer base across its Medicaid and Medicare businesses. The strength of the cost-effective health plans devised by HUM continues to fetch numerous contract wins and renewed agreements with the company from time to time. An array of buyouts undertaken over the years, such as those of Family Physicians Group, onehome, Curo and Inclusa, has expanded Humana's capabilities and diversified income streams.

The Zacks Consensus Estimate for Humana's 2023 earnings is pegged at $28.06 per share, indicating a 11.2% improvement from the year-ago reported figure. The consensus mark for current-year revenues suggests 11.5% growth from the year-ago actual. HUM's earnings beat estimates in each of the last four quarters, the average being 12.95%. Its shares have rallied 12.% in a year.

Centene: Based in Missouri, Centene's revenues witnessed an uptick from strength in its Medicare and Medicaid businesses. A well-diversified healthcare suite and solid nationwide presence have fetched numerous contract wins and deal renewals for CNC. It follows an inorganic growth route, which in turn, bolsters its capabilities and provides an opportunity to boost top-line growth. Partnerships with healthcare providers of a particular region enable CNC to deliver effective healthcare services and better serve the local community.

The Zacks Consensus Estimate for Centene's 2023 earnings is pegged at $6.34 per share, indicating a 9.7% rise from the year-ago reported figure. CNC's earnings surpassed estimates in three of the last four quarters and missed the mark once, the average being 4.16%. Its shares have lost 28% in a year, but solid fundamentals of the stock will likely help shares bounce back in the days ahead.

Molina Healthcare: This California-based health insurer is driven by a well-performing Government business. The business enables MOH to devise affordable Medicare and Medicare plans based on which it wins several contracts from time to time. Such contract wins result in a growing customer base for MOH. A series of acquisitions made over the years have expanded the business portfolio, diversified revenue streams and solidified the geographical footprint of MOH.

The Zacks Consensus Estimate for Molina Healthcare's 2023 earnings is pegged at $19.76 per share, indicating a 10.3% rise from the year-ago reported figure. The consensus mark for current-year revenues indicates a 4% improvement from the year-ago actual. MOH's earnings beat estimates in each of the last four quarters, the average being 2.95%. Even though its shares have lost 23.2% in a year, solid fundamentals are likely to help shares bounce back in the days ahead.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit  for information about the performance numbers displayed in this press release.

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UnitedHealth Group Incorporated (UNH) : Free Stock Analysis Report

Humana Inc. (HUM) : Free Stock Analysis Report

Molina Healthcare, Inc (MOH) : Free Stock Analysis Report

Cigna Group (CI) : Free Stock Analysis Report

Centene Corporation (CNC) : Free Stock Analysis Report

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