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Anthem (ANTM) vs. Humana (HUM): Which is Better-Positioned?
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Players in the health insurance industry are well-poised for growth on the back of acquisitions, solid premium revenues, strong Medicare and Medicaid businesses, rising enrolment, state-based contracts, etc. The robust 2021 outlook should also instill investors’ confidence in the stock.
The industry remains a promising platform for investments owing to surging demand for value-based health plans, increasing number of baby boomers and better health outcomes through usage of analytics, AI and other advanced technologies.
Other factors leading the industry are increasing contribution from complementary businesses, product modifications, expansion of international operations, better claims handling, cost management, technological investment and upgrade, mergers and acquisitions, and healthy balance sheets.
The recent win of the Affordable Care Act, which was challenged in 2017 as being unconstitutional, poise the industry players well for growth. Insurers will likely witness better membership as ACA makes it necessary for all Americans to buy health coverage. Earlier when it was introduced, Medicaid expansion and insurance subsidies to eligible individuals brought a denser population under the insurance net, which reflected on the revenue and membership growth of all major health insurance companies. Earnings and stock prices of health care companies have increased a lot more than the broader market since ACA was implemented in 2010.
Companies like Centene Corporation (CNC - Free Report) with a sturdy presence on the health insurance exchange already upped its estimates for 2021 membership on the back of gains from the special enrollment period. Likewise, Molina Healthcare, Inc. (MOH - Free Report) lifted its revenue projection for the current year, citing gains from the same.
The political, legislative and regulatory trends are long-term positives for the health insurance industry.
Given the current situation, companies like Anthem Inc. are also boosting their telehealth facilities. Virtual healthcare holds immense prospects for the players in the industry.
The industry is steadily gaining attention from investors owing to demand for value-based health plans and higher number of baby boomers.
The overall bullish scenario makes us believe that growth will be consistent in this industry, which should boost prospects of its companies with strong business fundamentals. The Zacks HMO industry carries a Zacks Industry Rank within the top 16% (41 of 254).
Against this backdrop, let’s look at the two leading health insurers, namely Anthem and Humana Inc. (HUM - Free Report) with their respective market capitalization of $94.8 billion and $58.2 billion. Each stock currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Now let’s analyze certain other parameters to find out which company is better placed.
Price Performance
In the past year, Anthem and Humana have gained 46.2% and 15.4%, respectively. The industry has rallied 40.1% in the same time frame compared with the S&P 500 Index’s 34.5% increase. It is clear that Anthem has an edge in this respect over Humana.
Image Source: Zacks Investment Research
Earnings Surprise History
A stock’s earnings surprise track helps investors get an idea about its performance in the previous quarters.
Humana managed to pull off average four-quarter beat of 9.42% with its earnings having surpassed the consensus mark in the trailing four quarters. Earnings of Anthem managed to beat the Zacks Consensus Estimate in all the trailing four quarters, the average being 2.47%. This clearly proves that the reading of Humana has an edge over Anthem here.
Return on Equity
Return on equity is a profitability measure, which accounts for profits generated on the shareholders’ equity. Hence, higher ROE reflects the company’s efficiency in using its shareholders’ funds and is preferred by all equity investors.
The ROE of 19.1% for Humana compares favorably with Anthem’s ROE of 17.1%.
Valuation
Price-to-earnings value is one of the multiples used for valuing health insurers. Compared with the health insurance industry’s forward 12-month P/E ratio of 18.79, Anthem is undervalued with a reading of 14.49 while Humana’s shares are expensive with a P/E ratio of 19.52.
Debt-to-Equity
Both companies’ debt-to-equity ratios are compared with the industry average of 57.3. However, Humana’s leverage ratio of 51.2 betters Anthem’s ratio of 68.5 as well as the industry’s. Therefore, Humana is at an advantage on this front.
Bottom Line
Our comparative analysis shows that Humana is better-positioned than Anthem with respect to earnings surprise, return on equity and leverage. Meanwhile, Anthem scores higher in terms of valuation and price performance. As the scale is tilted toward Humana, the stock understandably makes a more promising investment proposition.
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Anthem (ANTM) vs. Humana (HUM): Which is Better-Positioned?
Players in the health insurance industry are well-poised for growth on the back of acquisitions, solid premium revenues, strong Medicare and Medicaid businesses, rising enrolment, state-based contracts, etc. The robust 2021 outlook should also instill investors’ confidence in the stock.
The industry remains a promising platform for investments owing to surging demand for value-based health plans, increasing number of baby boomers and better health outcomes through usage of analytics, AI and other advanced technologies.
Other factors leading the industry are increasing contribution from complementary businesses, product modifications, expansion of international operations, better claims handling, cost management, technological investment and upgrade, mergers and acquisitions, and healthy balance sheets.
The recent win of the Affordable Care Act, which was challenged in 2017 as being unconstitutional, poise the industry players well for growth. Insurers will likely witness better membership as ACA makes it necessary for all Americans to buy health coverage. Earlier when it was introduced, Medicaid expansion and insurance subsidies to eligible individuals brought a denser population under the insurance net, which reflected on the revenue and membership growth of all major health insurance companies. Earnings and stock prices of health care companies have increased a lot more than the broader market since ACA was implemented in 2010.
Companies like Centene Corporation (CNC - Free Report) with a sturdy presence on the health insurance exchange already upped its estimates for 2021 membership on the back of gains from the special enrollment period. Likewise, Molina Healthcare, Inc. (MOH - Free Report) lifted its revenue projection for the current year, citing gains from the same.
The political, legislative and regulatory trends are long-term positives for the health insurance industry.
Given the current situation, companies like Anthem Inc. are also boosting their telehealth facilities. Virtual healthcare holds immense prospects for the players in the industry.
The industry is steadily gaining attention from investors owing to demand for value-based health plans and higher number of baby boomers.
The overall bullish scenario makes us believe that growth will be consistent in this industry, which should boost prospects of its companies with strong business fundamentals. The Zacks HMO industry carries a Zacks Industry Rank within the top 16% (41 of 254).
Against this backdrop, let’s look at the two leading health insurers, namely Anthem and Humana Inc. (HUM - Free Report) with their respective market capitalization of $94.8 billion and $58.2 billion. Each stock currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Now let’s analyze certain other parameters to find out which company is better placed.
Price Performance
In the past year, Anthem and Humana have gained 46.2% and 15.4%, respectively. The industry has rallied 40.1% in the same time frame compared with the S&P 500 Index’s 34.5% increase. It is clear that Anthem has an edge in this respect over Humana.
Earnings Surprise History
A stock’s earnings surprise track helps investors get an idea about its performance in the previous quarters.
Humana managed to pull off average four-quarter beat of 9.42% with its earnings having surpassed the consensus mark in the trailing four quarters. Earnings of Anthem managed to beat the Zacks Consensus Estimate in all the trailing four quarters, the average being 2.47%. This clearly proves that the reading of Humana has an edge over Anthem here.
Return on Equity
Return on equity is a profitability measure, which accounts for profits generated on the shareholders’ equity. Hence, higher ROE reflects the company’s efficiency in using its shareholders’ funds and is preferred by all equity investors.
The ROE of 19.1% for Humana compares favorably with Anthem’s ROE of 17.1%.
Valuation
Price-to-earnings value is one of the multiples used for valuing health insurers. Compared with the health insurance industry’s forward 12-month P/E ratio of 18.79, Anthem is undervalued with a reading of 14.49 while Humana’s shares are expensive with a P/E ratio of 19.52.
Debt-to-Equity
Both companies’ debt-to-equity ratios are compared with the industry average of 57.3. However, Humana’s leverage ratio of 51.2 betters Anthem’s ratio of 68.5 as well as the industry’s. Therefore, Humana is at an advantage on this front.
Bottom Line
Our comparative analysis shows that Humana is better-positioned than Anthem with respect to earnings surprise, return on equity and leverage. Meanwhile, Anthem scores higher in terms of valuation and price performance. As the scale is tilted toward Humana, the stock understandably makes a more promising investment proposition.
Zacks Names “Single Best Pick to Double”
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>