The healthcare industry seems to be rebounding from its pandemic-induced job losses. According to the latest job report from the U.S. Bureau of Labor Statistics, the healthcare industry added 57,000 jobs in June, representing a giant leap from May, which added 15,000 jobs. On the other hand, the resurging COVID-19 cases have induced renewed investors’ interest in the sector.
Asset management firm BlackRock Inc. (BLK) recommends owning healthcare stocks for a resilient portfolio. Additionally, BLK portfolio manager Dr. Erin Xie expects the sector to grow based on secular growth drivers such as aging societies’ demand for healthcare products and services.
Primarily driven by rising healthcare expenditures, the global health insurance market is forecasted to reach $3.30 trillion by 2028, growing at a CAGR of 4.4% between 2022 to 2028.
The Health Care Select Sector SPDR Fund (XLV) is up 4.2% over the past month, outperforming the SPDR S&P 500 ETF Trust’s (SPY) marginal declines over the same period.
Given the favorable prospects of the industry, the fundamentally strong healthcare stocks Cigna Corporation (CI), Centene Corporation (CNC), and Humana Inc. (HUM) might be solid buys now.
Cigna Corporation (CI)
CI operates as an insurance and related products and services provider in the United States. The company’s Evernorth segment offers a range of coordinated and point solution health services, and its Cigna Healthcare segment provides medical, pharmacy, and health advocacy programs.
On July 1, CI announced that it had completed the divestiture of its life, accident, and supplemental benefits businesses in six markets across the Asia Pacific to Chubb Ltd. (CB) in an approximately $5.40 billion transaction. “The completion of this transaction allows us to focus further our efforts to grow our global health portfolio,” said David M. Cordani, chairman and CEO of CI.
In June, CI announced its intent to repurchase $3.50 billion of common stock through accelerated stock repurchase agreements. The agreements are part of the company’s existing share repurchase program and might increase shareholder returns.
CI’s revenue increased 7.4% year-over-year to $44.01 billion in the first quarter ended March 31. Its adjusted income from operations grew 16% from the year-ago value to $1.93 billion, while its shareholders’ net income improved 1.9% year-over-year to $1.18 billion. The company’s adjusted income from operations per share increased 27.1% from its year-ago value to $6.01.
The consensus EPS estimate of $5.51 for the fiscal second quarter (ended June 2022) indicates a 5.2% improvement year-over-year. The consensus revenue estimate of $44.34 billion for the same quarter reflects a 2.9% increase from the same period last year. The company has an impressive earnings surprise history, as it topped the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 18.9% over the past year and 10.2% over the past month to close its last trading session at $279.19.
CI’s POWR Ratings reflect this promising outlook. The POWR Ratings assess stocks by 118 different factors, each with its own weighting. The company has an overall rating of A, which translates to Strong Buy in our proprietary rating system.
CI is rated a B in Growth, Value, Stability, Sentiment, and Quality. Within the A-rated Medical - Health Insurance industry, it is ranked #3 out of 11 stocks. To see additional POWR Ratings for Momentum for CI, click here.
Centene Corporation (CNC)
CNC is a multinational healthcare enterprise that offers programs and services to underinsured and uninsured individuals. The company operates through the Managed Care and Specialty Services segments.
In May, CNC announced that it had signed agreements to sell Magellan Rx to Prime Therapeutics LLC and PANTHERx Rare to a consortium of The Vistria Group, General Atlantic, and Nautic Partners. These divestitures are expected to be milestones in the company’s value creation plan.
CNC’s total revenues came in at $37.19 billion for the first quarter ended March 31, representing a 24% year-over-year growth. Its earnings from operations grew 18.9% from the prior-year quarter to $1.25 billion, while its adjusted net earnings rose 12.5% from the same period last year to $1.08 billion. The adjusted EPS increased 12.3% from the prior-year period to $1.83.
Analysts expect CNC’s revenue for the quarter ended June 2022 to be $35.56 billion, indicating a 14.6% year-over-year growth. The company’s EPS for the same quarter is expected to increase 27.2% from the prior-year quarter to $1.59. Additionally, CNC has topped consensus EPS estimates in three out of the trailing four quarters, which is impressive.
CNC has gained 19.7% over the past year and 10.7% over the past month to close its last trading session at $88.01.
It is no surprise that CNC has an overall A rating, which translates to Strong Buy in our POWR Rating system. The stock has an A grade for Growth and a B for Value and Sentiment. In the Medical - Health Insurance industry, it is ranked #4.
Beyond what we’ve stated above, we have also given CNC grades for Momentum, Stability, and Quality. Get all the CNC ratings here.
Humana Inc. (HUM)
HUM is a health and well-being company operating through three broad segments: Retail; Group and Specialty; and Healthcare Services. The company offers medical and supplemental benefit plans and pharmacy solutions.
In June, HUM announced its plans to bring its onehome value-based home care model to Virginia. “Humana’s acquisition of onehome in 2021 and expansion into Virginia this year further advances the company’s commitment to building our Home Solutions business and value-based offerings,” said Andrew Agwunobi, M.D., MBA, President of HUM’s Home Solutions business. “
In May, HUM subsidiary CenterWell Senior Primary Care and Welsh, Carson, Anderson & Stowe declared that they had established a joint venture to expand access to value-based primary care clinics for Medicare patients. This is expected to expand the company’s geographic footprint.
For the first quarter ended March 31, HUM’s adjusted revenue increased 16% year-over-year to $24.08 billion. Its operating cash flows rose 136.1% from the year-ago value to $302 million. The company’s adjusted pre-tax income increased 7.1% year-over-year to $1.34 billion, while its earnings per common share grew 4.8% from the prior-year quarter to $8.04.
Street EPS estimate for the fiscal second quarter (ended June 2022) of $7.68 reflects a rise of 11.5% year-over-year. Likewise, Street revenue estimate for the same quarter of $23.45 billion indicates an improvement of 13.6% from the prior-year period. Additionally, HUM has topped consensus EPS estimates in each of the trailing four quarters.
Over the past year, HUM’s stock has gained 6.1% and 8.8% over the past month to close its last trading session at $483.38.
HUM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to Strong Buy in our POWR Rating system.
HUM has an A grade for Sentiment and a B for Growth, Value, and Quality. It is ranked #5 in the same industry. Click here for the additional POWR Ratings for HUM (Momentum and Stability).
CI shares were trading at $280.08 per share on Monday afternoon, up $0.89 (+0.32%). Year-to-date, CI has gained 23.08%, versus a -18.17% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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