People prioritize their health, and the need for insurance coverage remains consistent regardless of market conditions. Therefore, the health insurance sector tends to be relatively stable and resilient, even during economic downturns, offering a hedge against market volatility.
Against this backdrop, it might be wise to take a bullish stance on Humana Inc. (HUM), which seems poised to capitalize on the sector’s growth. However, given the high inflation and a looming recession, it could be wise to wait for a better entry point in Bright Health Group, Inc. (BHG), which seems to portray signs of recovery. In addition, investors might steer clear of fundamentally weak stock Marpai, Inc. (MRAI).
The rising demand for the health insurance industry could be attributed to the increasing healthcare cost in the United States. In 2022, the U.S. individual health insurance industry reached $1.60 trillion. Projections indicate that the market will experience a CAGR of 6.1% from 2023 to 2030, indicating significant expansion in the coming years.
For example, the United States has one of the highest healthcare expenditure rates globally. In 2021, the country's healthcare spending amounted to $4.3 trillion, translating to an average of approximately $12,900 per person. In comparison, other affluent nations have an average healthcare cost per person that is roughly half the amount spent in the United States.
The aforementioned statistics highlight the significance of health insurance for individuals living in the United States. It also underscores the importance of obtaining adequate healthcare coverage to mitigate the high costs associated with medical expenses in the country.
However, although the global health insurance market exhibits bright prospects, it faces significant roadblocks from stringent regulations and longer claim reimbursement periods. With all these factors in mind, let us evaluate the fundamentals of the featured stocks in detail.
Stock to Buy:
Humana Inc. (HUM)
HUM operates as a health and well-being company through two segments: Insurance and CenterWell. The company offers medical and supplemental benefit plans to individuals. Further, it provides pharmacy solutions, provider services, and home solutions services to its health plan members and third parties.
On May 11, HUM revealed its partnership with two national organizations. This collaboration aims to offer Durable Medical Equipment (DME) services to assist members of Humana Medicare Advantage HUM’s dedication to expanding value-based care throughout its range of home care services is evident in the newly formed strategic partnerships.
On April 20, the company’s Board of Directors declared a dividend of $0.885 per share, payable to stockholders on July 28, 2023. HUM’s four-year average dividend yield is 0.64%, while its annual dividend of $3.54 per share translates to a 0.69% yield on prevailing prices.
Its dividend has grown at a 12.6% CAGR over the past three years and a 13.8% CAGR over the past five years.
HUM’s total revenue increased 11.6% year-over-year to $26.74 billion for the first quarter that ended on March 31, 2023. The company’s attributable net income came in at $1.24 billion, representing a 33.2% year-over-increase.
Its income from operations grew 33.4% from the prior-year quarter to $1.72 billion. Also, its adjusted EPS increased 20.1% from the year-ago value to $9.38.
Street expects HUM’s revenue and EPS for the second quarter (ending June 2023) to increase 10.6% and 2.6% year-over-year to $26.16 billion and $8.89, respectively. Moreover, it surpassed the EPS estimates in each of its trailing four quarters and the revenue estimates in three of its trailing four quarters, which is impressive.
Over the past year, the stock has gained 14.2% to close the last trading session at $513.34.
HUM’s POWR Ratings reflect this robust outlook. The stock has an overall A rating, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Quality and a B for Growth, Value, and Sentiment. In the 12-stock A-rated Medical – Health Insurance industry, it is ranked #2. To see additional POWR Ratings of HUM for Momentum and Stability, click here.
Stock to Hold:
Bright Health Group, Inc. (BHG)
BHG is a healthcare company that provides health insurance policies. The company operates in two segments: Bright HealthCare and Consumer Care. It offers virtual and in-person clinical care services contracts through primary care clinics. In addition, it also provides Medicare health plan products to its consumers.
On April 28, BHG made an announcement regarding its California Medicare Advantage business, comprising Brand New Day and Central Health Plan. The company is currently exploring strategic alternatives for this business, with a particular emphasis on a potential sale.
The proceeds from such a sale could significantly strengthen BHG's financial position and establish a solid foundation for long-term sustainable growth. While taking this action, the company remains committed to its Consumer Care Delivery business, focusing on capturing the shift towards value-based, consumer-driven healthcare.
BHG’s total revenue increased 23.3% year-over-year to $756.34 million in the first quarter (ended March 31, 2023), while its operating loss declined 46.4% from the year-ago value to $85.75 million.
The company’s net loss amounted to $169.46 million and $0.30 per share for the same period, respectively. Also, its adjusted EBITDA loss decreased 40.7% from the prior-year quarter to $35.05 million.
During the same period, its cash and cash equivalents amounted to $382.51 million, declining 17.9% compared to $466.33 million for the period that ended December 31, 2022.
Analysts expect BHG’s revenue for the second quarter (ending June 2023) to decline 52.9% year-over-year to $741.79 million. Its loss per share for the ongoing quarter is expected to be $5.60. However, its EPS is expected to improve by 41.1% per annum in the next five years. Additionally, it failed to surpass the revenue estimates in each of its trailing four quarters.
BHG’s shares have declined 91.9% over the past nine months to close the last trading session at $10.61.
BHG’s POWR Ratings reflect this outlook. It has an overall rating of C, equating to Neutral in our proprietary rating system. It has a C grade for Value, Momentum, Sentiment, and Quality. Out of 12 stocks in the same industry, it is ranked #11.
Beyond what I’ve stated above, we have also given BHG grades for Growth and Stability. Get all BHG ratings here.
Stock to Avoid:
Marpai, Inc. (MRAI)
MRAI is a technology-driven healthcare payer which focuses on providing services to the self-insured employer market in the United States and Israel. The company also offers ancillary services, such as care management, case management, actuarial services, health savings account administration, bill review, and cost containment services.
For the first quarter that ended March 31, 2023, MRAI’s total costs and expenses increased 54.8% year-over-year to $18.19 million, while its operating loss widened 53.9% from the year-ago value to $8.52 million. The company’s net loss amounted to $8.87 million and 0.42 per share, widening 61.6% and 50% from its prior-year quarter, respectively.
During the same period, its cash and cash equivalents and current assets amounted to $6.18 million and $20.08 million, declining 55.1% and 24.3% versus $13.77million and $26.54 million for the period that ended December 31, 2022, respectively.
The consensus EPS estimate for the second quarter (ending June 2023) is expected to be negative $0.25. Its EPS is expected to remain negative for the fiscal years 2023 and 2024.
The stock has slumped 59.6% over the past year to close the last trading session at $0.59
MRAI’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall rating of D, which translates to Sell in our proprietary rating system.
It also has a D grade for Stability and Quality. Within the same industry, it is ranked last. Click here to see MRAI’s ratings for Growth, Value, Momentum, and Sentiment.
What To Do Next?
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HUM shares were trading at $516.57 per share on Monday morning, up $3.23 (+0.63%). Year-to-date, HUM has gained 1.04%, versus a 13.12% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
1 Health Insurance Stock to Buy, 1 to Hold, and 1 to Sell StockNews.com
