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4 HMO Q4 Outperformers Likely to Retain Beat Streak in Q1


The Medical Health Maintenance Organizations (HMOs) continued with the winning streak in the fourth quarter of 2018 after witnessing favorable earnings in the first three quarters of 2018. Increase in revenues, higher membership, accretive acquisitions, efficient medical cost management along with a solid capital position aided the industry’s growth, thereby keeping the positive momentum alive.

Strategic inorganic actions undertaken by the industry players through acquisitions and divestment of non-core operations have streamlined respective businesses while paving a path for earnings growth. Companies continue to evaluate planned acquisitions for portfolio enhancement and consolidating health care services business. These integration targets have been in the areas of technology, specialty pharmacy and other clinical assets. The buyout game is expected to remain solid in 2019 as well.

Moreover, center for Medicare and Medicaid Services proposed to update the Medicare Advantage (MA) payment rates for 2019 by 3.4%. This raise would likely make an impact on more than 20 million seniors or disabled people.

For insurers, who are competing with the Traditional Medicare, this is the right opportunity to play their cards well by including further benefits under the plans.

The companies would likely witness steady membership growth this year on the back of a stable MA rate revision, the health insurer fee moratorium along with tax legislation that leads to financial flexibility.

The overall healthcare scenario also seems to be beneficial to the companies. In this context, it should be noted that the healthcare spending represents around 17% of gross domestic product and healthcare expenses are doubling up the country’s economic growth rate. Thus, the medical HMO players have ample scope for growth in the near future.

In the past few years, with increase in demand for cost-effective value-based care, the companies were able to reduce the health system complexity for seniors. In 2019 and beyond, the players are expected to enjoy sustained growth via expanding government programs. Medicare Advantage business is the fastest growing health insurance. The industry is exploring a market of above 10,000 baby boomers aging into the Medicare populace on a daily basis. The seniors are preferring Advantage than the age-old Medicare because of the various benefits they are getting.

When it comes to Medicaid, more states are opting for it to basically improve the health outcomes of individuals, thereby controlling costs. The Medicare Advantage scenario is seeing a steady shift, mainly driven by a renewed focus on providing better service to patients and a competitive landscape. Moreover, value-based purchasing has immense potential to offer patients improved health conditions.

2019 Outlook

Notably, healthcare policies and the macroeconomic impact can lead to changes in the utilization patterns. Given the current economy, utilization of services might increase at a constant rate this year. Factors like consistent demand even when the market is down, innovation and a rapidly aging population bode well for the industry’s growth in 2019.

Moreover, customer spending is likely to rise in the ongoing year, backed by new products and service prices, market power and technology.

The healthcare industry, which has been light on embracing technology, will seek technological investment and invention in 2019. The players will gain advantage from the various benefits of big data, artificial intelligence, analytics, informatics, machine learning, virtual assistant, which in turn, lower inefficiencies and wastages that bump up the total medical cost and deteriorate the quality of care.

Other factors such as growth in remote patient monitoring programs, mergers and buyouts, favorable effects of tax cuts, etc. poise the industry well.

The health insurance fee moratorium for 2019 has allowed players on the whole to make significant investments in products for benefiting members and driving improved health results.

The 2019 market is anticipated to see insurers return to the ACA Marketplaces as well.

The industry currently carries a Zacks Industry Rank #25, which places it at the top 10% of 257 Zacks industries.

The Medical HMO industry has grown 8.3% in a year’s time, outperforming the S&P 500 Composite’s increase of 2.5%.

Stocks Expected to Sustain the Winning Streak

Now let us take a look at the stocks that are likely to continue with the bull run in 2019.

Here we pick four top healthcare bets that can show a great trend with an encouraging price movement. These stocks have performed well over the last few quarters and are likely to carry on with the purple patch. The stocks carry an impressive VGM Score of A or B and a Zacks Rank #1 (Strong Buy) or 2 (Buy). The stocks have also witnessed estimates move north recently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Molina Healthcare, Inc. MOH is a multi-state managed care organization, participating exclusively in government-sponsored healthcare programs. The company holds a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for 2019 and 2020 earnings has been revised 6.5% and 6.3% upward, respectively, over the last 30 days. The company managed to deliver positive results in all the trailing four quarters, the average being 109.4%. In a year’s time, the stock has soared nearly 86.9%, outperforming its industry’s rise of 8.3%.

UnitedHealth Group Incorporated UNH is a diversified health care company in the United States. The company has a Zacks Rank of 2 and an attractive VGM Score of A. The stock pulled off average four-quarter beat of 3.39%. The company has witnessed its 2019 Zacks Consensus Estimate being nudged 0.1% up over the past 60 days. The stock has gained 9.9% in a year, outperforming its industry’s growth of 8.3%.

Anthem, Inc. ANTM operates as a health benefits company in the United States. The stock has a Zacks Rank of 1 and a VGM Score of A. It came up with average trailing four-quarter positive surprise of 7.04%. The company has witnessed its 2019 and 2020 estimates being raised 0.8% and 3.7%, each, over the past 30 days. The stock has surged 32% in a year's time, outperforming its industry's rally of 8.3%.

WellCare Health Plans, Inc. WCG offers government-sponsored managed care services. It has a VGM Score of A and is a Zacks #2 Ranked player. The company has witnessed its 2019 Zacks Consensus Estimate move 0.5% north over the past 60 days. The stock pulled off average four-quarter earnings surprise of 15.43%. Shares of the company have rallied 27% in the past year, outperforming its industry’s increase of 8.3%.

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