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Zacks Industry Outlook Highlights: Aetna, Cigna, UnitedHealth and CVS Health
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For Immediate Release
Chicago, IL – January 23, 2018 – Today, Zacks Equity Research discusses the Health Insurance, including Aetna Inc. , Cigna Corp. (CI - Free Report) , UnitedHealth Group (UNH - Free Report) and CVS Health Corp. (CVS - Free Report) .
The year gone by was a tumultuous one for health insurers as the industry reeled under constant uncertainty stemming from President Trump and the Republican Congress’ efforts to repeal and replace Obamacare. Toward the end of the year, the individual mandate (which required most Americans to obtain health insurance or pay a fine) of Obamacare was stripped from the GOP tax bill.
Apart from political tumult, tough regulatory oversight led to the blockage of two mega-mergers: Aetna Inc. with Humana and Cigna Corp. with Anthem.
On an operational level, rising medical costs, public exchanges woes, increased investments in technology, higher operating costs and stiff competition were some of the headwinds that prevailed. Nevertheless, the players emerged as winners with most of them reporting a rise in revenues, membership and margins. Factors such as low medical utilization, greater emphasis on value-based care, diversification of operations, product and service development, cost control efforts and strong capital levels worked in their favor.
Rapid evolution is being witnessed in the health insurance industry as the players are taking concerted efforts to transform themselves into comprehensive health care providers from their earlier role of traditional payers. This metamorphosis is being driven by growing consumerism, changes brought about by healthcare reform, more focus on value-based care, the need to control rising medical costs and being more competitive.
Another wind blowing across the industry is cross-sector collaboration, wherein health insurers are foraying into another realm of the health care industry such as pharmacy benefit management, ambulatory care and physician services.
These combinations that qualify as lateral integrations are catching the eye of insurers since such deals enable them to broaden their service and product portfolio, and become a comprehensive healthcare company. Some of the mega deals in this vein are UnitedHealth Group’s acquisition of Catamaran and the pending merger of Aetna with CVS Health Corp.
Despite all the ambiguity, the industry remained an outperformer by growing 54% in a year’s time compared with the S&P 500 index’s 24% gain.
What’s in the Cards in 2018?
The year 2018 will be fraught with risk and uncertainty as the repeal and replace conundrum continues. Though the individual mandate has been stripped off, legislators will have to come up with some replacement policy for the individual mandate.
Nevertheless, since insurers have been paying high tax, the tax reform pursuant to The Tax Cuts and Jobs Act of 2017 should come as a breather. Recently, UnitedHealth reported that it has gained $1.22 per share non-cash benefit for 2017 from the revaluation of its net deferred tax liability due to the tax reform.
The savings from a lower tax rate will most likely be utilized in accelerating investments in data analytics, technology and innovations to better serve consumers and care systems and to advance new and existing business platforms.
The year 2018 should see more of vertical integration via mergers and acquisitions as players will look for suitable targets to a) strengthen an existing business or platform; b) provide a new platform for future growth; c) bring tools, technologies or skills that cannot be otherwise obtained or developed more efficiently.
We also see the potential for sustained growth particularly in expanding government programs, Medicare and Medicaid. Increasing demand for Medicare plans from baby boomers and migration by more states to manage Medicaid have created huge growth opportunities in this line of business.
Is Further Upside Potential Left?
While the industry has outperformed the broader market, valuations remain a bit stretched and leave limited or no room for further upside.
The Zacks HMO industry is currently trading at a forward 12-month price-to-earnings ratio of 19.4 which compares unfavorably with 19.3 for the S&P 500 index as a whole. Over the last 5 years, the industry has traded in a range of 9.3 to 21.8, with a median of 15.9
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights: Aetna, Cigna, UnitedHealth and CVS Health
For Immediate Release
Chicago, IL – January 23, 2018 – Today, Zacks Equity Research discusses the Health Insurance, including Aetna Inc. , Cigna Corp. (CI - Free Report) , UnitedHealth Group (UNH - Free Report) and CVS Health Corp. (CVS - Free Report) .
Industry: Health Insurance, Part 1
Link: https://www.zacks.com/commentary/146272/health-insurance-stock-outlook---january-2018
The year gone by was a tumultuous one for health insurers as the industry reeled under constant uncertainty stemming from President Trump and the Republican Congress’ efforts to repeal and replace Obamacare. Toward the end of the year, the individual mandate (which required most Americans to obtain health insurance or pay a fine) of Obamacare was stripped from the GOP tax bill.
Apart from political tumult, tough regulatory oversight led to the blockage of two mega-mergers: Aetna Inc. with Humana and Cigna Corp. with Anthem.
On an operational level, rising medical costs, public exchanges woes, increased investments in technology, higher operating costs and stiff competition were some of the headwinds that prevailed. Nevertheless, the players emerged as winners with most of them reporting a rise in revenues, membership and margins. Factors such as low medical utilization, greater emphasis on value-based care, diversification of operations, product and service development, cost control efforts and strong capital levels worked in their favor.
Rapid evolution is being witnessed in the health insurance industry as the players are taking concerted efforts to transform themselves into comprehensive health care providers from their earlier role of traditional payers. This metamorphosis is being driven by growing consumerism, changes brought about by healthcare reform, more focus on value-based care, the need to control rising medical costs and being more competitive.
Another wind blowing across the industry is cross-sector collaboration, wherein health insurers are foraying into another realm of the health care industry such as pharmacy benefit management, ambulatory care and physician services.
These combinations that qualify as lateral integrations are catching the eye of insurers since such deals enable them to broaden their service and product portfolio, and become a comprehensive healthcare company. Some of the mega deals in this vein are UnitedHealth Group’s acquisition of Catamaran and the pending merger of Aetna with CVS Health Corp.
Despite all the ambiguity, the industry remained an outperformer by growing 54% in a year’s time compared with the S&P 500 index’s 24% gain.
What’s in the Cards in 2018?
The year 2018 will be fraught with risk and uncertainty as the repeal and replace conundrum continues. Though the individual mandate has been stripped off, legislators will have to come up with some replacement policy for the individual mandate.
Nevertheless, since insurers have been paying high tax, the tax reform pursuant to The Tax Cuts and Jobs Act of 2017 should come as a breather. Recently, UnitedHealth reported that it has gained $1.22 per share non-cash benefit for 2017 from the revaluation of its net deferred tax liability due to the tax reform.
The savings from a lower tax rate will most likely be utilized in accelerating investments in data analytics, technology and innovations to better serve consumers and care systems and to advance new and existing business platforms.
The year 2018 should see more of vertical integration via mergers and acquisitions as players will look for suitable targets to a) strengthen an existing business or platform; b) provide a new platform for future growth; c) bring tools, technologies or skills that cannot be otherwise obtained or developed more efficiently.
We also see the potential for sustained growth particularly in expanding government programs, Medicare and Medicaid. Increasing demand for Medicare plans from baby boomers and migration by more states to manage Medicaid have created huge growth opportunities in this line of business.
Is Further Upside Potential Left?
While the industry has outperformed the broader market, valuations remain a bit stretched and leave limited or no room for further upside.
The Zacks HMO industry is currently trading at a forward 12-month price-to-earnings ratio of 19.4 which compares unfavorably with 19.3 for the S&P 500 index as a whole. Over the last 5 years, the industry has traded in a range of 9.3 to 21.8, with a median of 15.9
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.