4 Attractive Health Insurers From a Top-Ranked Industry

On Aug 1, U.S. Health and Human Services announced a new rule for short-term and limited-duration insurance coverage. Pursuant to this new rule, customers will be able to purchase limited-duration health plans for periods as short as 12 months. Moreover, the plans can be renewed post termination of coverage after the said period and is renewable for further 24 months. Such an accommodation makes these health plans less pricey than the Obamacare-compliant policies. This would also lead to higher demand for health insurance plans.

The CMS estimates that rising costs associated with such health plans would result in about 1.6 million people in America moving to short-term policies by 2022.

The industry is also strongly poised for growth given a changing U.S. demography with baby boomers entering retirement age in hordes pushing up demand for products such as Medicaid and Medicare. This has led to strong membership growth with states turning to private players to manage these plans.

Continuing consolidation in the industry should transform health insurers into comprehensive health care providers, which will enable the companies to offer superior care at lower cost thus aiding margins. A number of cross industry collaborations are under way. Some of the notable deals underway are the acquisition of Express Scripts by Cigna Corp. and of Aetna Inc. by CVS Health.

Also, development of products and services, which include care delivery, population health management and engagement, health financial services, health IT, benefit operations, care operations and pharmacy care services that complement their core business lines — Commercial, Medicare and Medicaid products — and enable enhanced service delivery and experience to their customers, should accrue to revenues and earnings.

In recent years, health insurers have been moving to international markets. This shift is expected to continue given that international markets remain underpenetrated. This should provide immense scope for growth.

Strong Industry Returns

The Zacks Medial-Health Maintenance Organization industry, which is a stock group within the broader Zacks Medical Sector, has outperformed both the S&P 500 and its own sector over the past year.

We see that the stocks in this industry have collectively gained 36% over the past year, while the Zacks S&P 500 Composite and Zacks Medical Sector have grown 17.5% and 6.7%, respectively.

Strong Industry Rank

A top Zacks Industry Rank signifies that more stocks within that group are likely to witness upward earnings estimate revisions, hinting at bullishness.

The Zacks Industry classification divides the business world into 16 sectors comprising 60 medium or M-level industries and 260 plus or X-level industries. We rank all 260 plus X-level industries based on the earnings outlook for the constituent companies in each industry.

One of the top-ranked industries currently is Medical HMO. It carries a Zacks Industry Rank #50 (top 20% of the 256 Zacks industries). Our back-testing shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

Stocks to Pick

A strong industry rank plus a conducive operating environment paints a perfect investment scenario.

Below are four stocks with positive earnings estimate revisions and a bullish Zacks Rank.

WellCare Health Plans, Inc. WCG is the provider of managed care services for government-sponsored healthcare programs. The expected earnings growth rate for the current year is 27.7%. The Zacks Consensus Estimate for the current year has improved 6% over the last 30 days. The company carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Molina Healthcare, Inc. MOH   is a provider of government sponsored plans -- Medicare and Medicaid. The stock sports a Zacks Rank #1. The expected earnings growth rate for the current year is 1239.3%. The Zacks Consensus Estimate for the current year has improved 62% over the last 30 days.

UnitedHealth Group Inc. UNH is a provider of retail, group and specialty healthcare insurance services. The stock carries a Zacks Rank #2. The expected earnings growth rate for the current year is 26.3%. The Zacks Consensus Estimate for the current year has improved 0.8% over the last 30 days.

Anthem Inc. ANTM is the owner and operator of a health benefits company in the United States. It provides commercial, business as well as group health insurance plans. The company has a Zacks Rank #2. The expected earnings growth rate for the current year is 28.6%. The Zacks Consensus Estimate for the current year has improved 0.6% over the last 30 days.

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