The Affordable Care Act of 2010, or ObamaCare as it is commonly dubbed, has made the single biggest impact in the American healthcare industry since the introduction of Medicare in the 60s. The new laws have created a whole new world for healthcare providers and investors alike.
Although new regulations have increased operational costs, the ACA also requires every citizen to have a health insurance plan, handing companies millions of potential new customers. In response to the ups and downs of ObamaCare, healthcare providers have been looking to consolidate to improve efficiency and service quality. Buyout rumors have been running rampant in the industry lately.
Here at Zacks, we’ve recognized a variety of favorable trends in the healthcare industry resulting from these operational changes. In fact, rising earnings estimates have landed the HMO industry in the top 12% of the Zacks Industry Rank. Furthermore, buyouts and consolidation tend to lead to increases in share prices, underscoring the positive trend in this market segment.
Top HMO Stocks
Below, we have highlighted a trio of ‘buy’ ranked stocks, which look to take advantage of these trends and could make for interesting additions to investor portfolios this summer. Any of the three listed below are seeing impressive industry strength, positive trends in earning estimate revisions, and talks of large-scale buyouts to boot making all of them worth a closer look by investors seeking quality exposure in the health care segment right now:
Centene Corporation (NYSE:CNC)
Centene Corporation is a healthcare enterprise that provides a wide variety of services to government healthcare programs. With a focus on the uninsured and under-insured, Centene works alongside public programs such as Medicaid and Medicare. The company operates local health plans and contracts with other organizations to provide services ranging from behavioral health to dental care.
A Fortune 500 company, Centene does business in 21 states and has a value of over $10 billion. Centene currently holds a Zacks Rank #1 (Strong Buy). The company is also showing strong Style Scores, with “B” grade in growth and value, and an “A” in momentum.
Centene’s strong Zacks Rank is the result of recent earnings estimate revisions. In the last 7 days alone, 9 positive earnings estimate revisions have been made for Centene’s current fiscal quarter. With the Zacks Most Accurate Estimate showing growth of $2.77 per share this year, Centene is a stock to look at now.
Aetna, Inc. (NYSE:AET)
Aetna is one of the nation’s largest health benefits, insurance, and financial services organizations. With customers in all 50 states, Aetna provides plans to a range of employers and plan sponsors. Aetna products include full health, dental, and life insurance plans; dental and pharmacy benefits; and group insurance discounts.
Reports from Forbes have highlighted Aetna’s interest in buying out competing health insurance company Cigna (NYSE:CI), which could lead to a much wider range of customers and services—all good news for investors. Additionally, earnings estimate revisions have been looking favorable for Aetna in the long term. In the past 60 days, Aetna has received 13 positive revisions for the current year. The company currently holds a Zacks Ranks #2 (Buy). Aetna is also holding solid Style Scores, with “A” grades in both value and growth.
UnitedHealth Group, Inc. (NYSE:UNH)
UnitedHealth is a diverse healthcare enterprise servicing over 70 million customers nationwide. UnitedHealth Group is the parent of UnitedHealthcare, which is the largest single healthcare provider in the country. UnitedHealth’s services include information management, provider contracting, insurance plans, and benefit administration.
Recently, the Wall Street Journal reported that UnitedHealth is seeking to buyout smaller rivals, going as far as approaching Aetna about a buyout worth around $40 billion. UnitedHealth currently holds a Zacks Rank #2 (Buy), and is showing positive signs based on earnings estimates. The company also boasts impressive Style Scores, holding a “B” in momentum and “A” scores in growth and value.
Bottom Line
Based on the latest trends, Zacks sees these three companies as valuable buys in a strong industry. Investors should be aware of these impressive trends in earnings estimate revisions, while also paying attention to the latest news as well as any updates on buyouts and acquisitions.