The health insurance industry is well-poised for growth on the back of an aging population and a boom in the Medicaid and Medicare businesses. The leading players are aiming for progress owing to sufficient capital and rising enrollment.

Major companies in the industry performed well in the first half of the year on the back of higher enrolment, increased premium revenues, healthy balance sheets, capital deployment, steady cash flows, contract wins, etc.

Moreover, after solid second-quarter results, companies like Anthem Inc. has upped their guidance. Also, Centene Corporation (CNC Quick QuoteCNC - Free Report) anticipates better revenues and EPS from its respective earlier projections.

Factors Likely to Impact Insurers in 2H

Solid Medicaid Business: The whole of United States has been grappling with financial woes of late, emanating from the COVID-19 outbreak. As the economy is gradually showing signs of a steady recovery, we believe that there is tremendous prospect for Medicaid business. This is because Medicaid health plans generally provide coverage to low-income groups across the country.

Strong Growth Backed by Retiring Baby Boomers: Medicare and Medicaid — the government-sponsored programs for the retiring population and the underprivileged — have been in great demand for a while now among a huge population of baby boomers that is touching the retirement age. Moreover, the expansion of Medicaid augmented enrollment in this plan. Both schemes saw a growing participation of private health insurers as states reach out to them to effectively manage the expenses of these plans.

Rise of Telehealth Services: Ever since the pandemic has hit the world, people are adapting to the new normal that fuelled the adoption of telehealth facilities. Remote healthcare has been a way for medical assistance, more so amid the ongoing pandemic so far. This, in turn, spurs demand for telemedical expertise and boosts the telehealth market eventually, which remained out of focus for long. Health insurers like Anthem and Magellan Health, Inc. enhanced their virtual healthcare services and offerings to aid members.

Financial Flexibility: Most of the leading health insurance companies boast healthy balance sheets, which will likely help them sustain operations going forward. Companies have been witnessing sturdy solvency levels on the back of which they are able to deploy capital to their shareholders in the form of buybacks and dividends.

What Will Keep the Momentum Alive?

We believe that the future prospects of the health insurance industry are bright despite the pandemic. It is recovering from top-line growth, mounting contribution from complementary businesses, product modifications, enriched services, expansion of international operations, better claims handling, cost-curbing measures, technological investment and upgrade, mergers and acquisitions, and balance sheet strength.

The overall bullish scenario makes us believe that growth will be consistent in this industry, which should drive prospects of the companies with strong business fundamentals. Moreover, this buoyancy in the health insurance space is confirmed by its  Zacks Industry Rank  within the top 41% (105 of 254).

In a year’s time, the  industry  has rallied 28.2%, underperforming 35.7% growth of the S&P 500 Index.

Stocks on the Watchlist

The industry’s growth trajectory has been stable so far and there are plenty of opportunities for the industry players to tap for progress in the near future. Thus, investing in this domain should be a wise move, especially at a time when other sectors are feeling the heat.

Let us take a look at the stocks that should be on investors’ radar right now. Here we pick four options that have an attractive  VGM Score  and a Zacks Rank #3 (Hold), currently. Therefore, these companies hold great potential to retain a purple patch going forward.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Anthem  is well-poised for growth on the back of its rising membership, a solid 2021 outlook, buyouts and collaborations, and an expanded product portfolio. The company currently has a Zacks Rank of 3 and a VGM Score of A. The stock has witnessed its 2021 earnings estimate move 1.2% north over the past 30 days. The consensus mark for 2021 earnings indicates an upside of 13.7% from the year-ago reported figure. In a year’s time, shares of the company have gained 36.4% compared with its industry’s increase of 28.2%.

Molina Healthcare, Inc.'s (MOH Quick QuoteMOH - Free Report)   ability to engage in inorganic growth initiatives and capital deployment reflects an improved financial position. Its solid 2021 guidance impresses too. It has a VGM Score of A and is currently Zacks #3 Ranked. The company’s earnings estimate for the current year is expected to witness an upside of 25.8% from the 2020 reported figure. Over the past 30 days, the stock has seen its current-year earnings estimate being revised 0.3% upward. Molina Healthcare has surged 34.8% in the past year.

UnitedHealth Group Incorporated's (UNH Quick QuoteUNH - Free Report) continued strong growth at Optum as well as UnitedHealthcare segments are driving revenues. Its favorable government business and a robust capital position are other positives. With a Zacks Rank #3 at present, the company has a VGM Score of B. Over the past 30 days, the stock has seen its current-year earnings estimate being revised 0.2% upward. The company’s earnings estimate for the current year is expected to witness an upside of 11.1% from the 2020 reported figure. In a year’s time, the stock has jumped 35.1%.

Centene Corporation's leading position in the industry is largely supported by its prudent operating performance, strong inorganic growth and solid fundamentals. A solid 2021 guidance also impresses. The company has a Zacks Rank #3 and a VGM Score of A at present. Its earnings estimate for the current year is expected to witness an upside of 2.8% from the 2020 reported figure. In a year’s time, the stock has inched up 3.6%.

Image Source: Zacks Investment Research