The fast-paced growth in healthcare expenses is driving the demand for health insurance as it can not only save one’s life but also save a person from financial ruin. Health insurance plays a crucial role in managing financial risks.
Amid this backdrop, it could be wise to buy fundamentally strong medical stocks: Elevance Health, Inc. (ELV), Molina Healthcare, Inc. (MOH), and The Cigna Group (CI).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the health insurance industry is well-positioned for growth.
The need for insurance is imperative in today's uncertain world. The insurance industry appeals to conservative investors since these businesses are known to prosper regardless of the state of the economy.
Health insurance plays a crucial role in saving oneself from financial ruin, as healthcare costs have been rising gradually every year. As the population continues to grow old and with the increase in the number of chronic diseases, the demand for medical services and health insurance is expected to remain robust.
The Centers for Medicare and Medicaid Services predict a 5.1% annual growth in U.S. healthcare expenditure, reaching a projected 19.6% share of GDP in 2030. Health expenditures remain a priority irrespective of economic cycles, enabling health insurance companies to enhance their profit margins. The global health insurance market is expected to grow at a CAGR of 9.4%, reaching $4.66 trillion by 2032.
Considering these conducive trends, let’s analyze the fundamental aspects of the three Medical - Health Insurance industry picks, beginning with the third choice.
Stock #3: Elevance Health, Inc. (ELV)
ELV operates as a health benefits company. The company operates through four segments: Commercial & Specialty Business, Government Business, CarelonRx, and Other. It supports consumers, families, and communities across the entire care journey, connecting to the care, support, and resources to lead healthier lives.
In terms of the trailing-12-month EBITDA margin, ELV’s 6.03% is 28.1% higher than the 4.71% industry average. Likewise, its 1.58x trailing-12-month asset turnover ratio is 316.2% higher than the 0.38x industry average.
For the fiscal third quarter that ended September 30, 2023, ELV’s total revenue increased 7.3% year-over-year to $42.85 billion. In addition, the company’s adjusted net income came in at $2.13 billion and $8.99, up 17.6% and 20.5% year-over-year, respectively.
Street expects ELV’s EPS and revenue for the quarter ending December 31, 2023, to increase 7.8% and 6.2% year-over-year to $5.64 and $42.14 billion, respectively. It surpassed Street EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 1.6% to close the last trading session at $461.39.
ELV’s POWR Ratings reflect strong prospects. It has an overall rating of A, translating to a Strong Buy in our proprietary system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #4 out of 11 stocks in the A-rated Medical - Health Insurance industry. It has a B grade for Value, Stability, Sentiment, and Quality. Click here to see ELV’s ratings for Growth and Momentum.
Stock #2: Molina Healthcare, Inc. (MOH)
MOH provides managed healthcare services to low-income families and individuals under the Medicaid and Medicare programs and through the state insurance marketplaces. It operates in four segments, Medicaid; Medicare; Marketplace; and Other.
On September 5, 2023, MOH announced that it completed the acquisition of My Choice Wisconsin (MCW) on September 1, 2023. As of June 30, 2023, MCW provided services to more than 44,000 members.
On June 30, 2023, MOH announced an agreement to acquire Bright Health Company of California, Inc (BHCA) subsidiaries: Brand New Day and Central Health Plan of California. This acquisition supports MOH’s 2024 Medi-Cal contract, D-SNP growth initiatives, and the Los Angeles County 2024 D-SNP option. It is expected to add $1 per share to new store-embedded earnings, totaling $5.50 per share.
MOH’s President and CEO Joe Zubretsky said, “These additions fit perfectly with our strategy of serving high-acuity, low-income members and represent a textbook execution of our growth playbook. We acquire viable assets at attractive valuations, then deploy our proven team of operators to deliver improved financial results.”
In terms of the trailing-12-month EBITDA margin, MOH’s 5.22% is 11% higher than the 4.71% industry average. Likewise, its 2.35x trailing-12-month asset turnover ratio is 519.2% higher than the 0.38x industry average. Additionally, its trailing-12-month levered FCF margin of 5.23% compares to the negative industry average of 0.01%.
For the fiscal third quarter ending September 30, 2023, MOH’s total revenue increased 7.8% year-over-year to $8.55 billion. Its adjusted net income increased 15.7% over the same period last year to $294 million.
Its operating income for the period increased 7.2% over the prior-year quarter to $359 million. In addition, its adjusted EPS came in at $5.05, representing an increase of 15.8% year-over-year.
For the quarter ending December 31, 2023, MOH’s EPS and revenue are expected to increase 6.5% and 1.9% year-over-year to $4.37 and $8.38 billion, respectively. It surpassed Street EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 20.9% to close the last trading session at $361.13.
MOH’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Growth and Quality and a B for Value. Within the same industry, it is ranked #3. To see MOH’s Momentum, Stability, and Sentiment ratings, click here.
Stock #1: The Cigna Group (CI)
CI provides insurance and related services in the U.S. It operates through its Evernorth Health Services and Cigna Healthcare segments. The company also offers permanent insurance contracts for financing employer-paid benefits.
In terms of the trailing-12-month EBITDA margin, CI’s 5.41% is 14.9% higher than the 4.71% industry average. Likewise, its 1.29x asset turnover ratio is 240.5% higher than the 0.38x industry average.
CI’s total net revenues for the third quarter ended September 30, 2023, increased 8.3% year-over-year to $49.05 billion. Its consolidated after-tax adjusted income from operations rose 8.2% year-over-year to $2.01 billion. The company’s adjusted EBITDA increased 9% year-over-year to $3.21 billion. Moreover, the company’s shareholders’ net income came in at $1.41 billion.
Analysts expect CI’s EPS and revenue for the quarter ending December 31, 2023, to increase 32% and 7% year-over-year to $6.54 and $48.95 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 14.6% to close the last trading session at $294.12.
CI’s positive outlook is reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has a B grade for Growth, Value, Stability, Sentiment, and Quality. It is ranked first in the Medical – Health Insurance industry. Click here to see CI’s Momentum rating.
What To Do Next?
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ELV shares were trading at $463.76 per share on Tuesday morning, up $2.37 (+0.51%). Year-to-date, ELV has declined -8.71%, versus a 18.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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