Widespread job loss in the United States brought with it the loss job-based health insurance coverage for many. However, the number of uninsured people has not increased significantly. That’s because the majority of people that lost their job-based health insurance coverage last year have gained other types of health coverage through public programs, such as Medicaid, the Children’s Health Insurance Program (CHIP), and health insurance marketplaces established by the Affordable Care Act (ACA).
Along with the recently passed COVID-19 recovery bill, a rising job market is expected to further reduce the number people uninsured for health care in the United States in the coming months. Moreover, the industry has been benefiting from rising medical costs. According to a report by Aon, the costs of employer medical benefits across the world are forecasted to rise 7.2% in 2021, outpacing general inflation by 5%.
Hence, we think health insurance companies UnitedHealth Group Incorporated (UNH) and Cigna Corporation (CI) exhibit potential to reach hit highs this year. Let’s take a closer look.
UnitedHealth Group Incorporated (UNH)
UNH is a diversified health care company that offers a broad spectrum of products and services through four segments: UnitedHealthcare, OptumHealth, OptumInsight and OptumRx. The company provides health care coverage and benefits services, along with information and technology-enabled health services.
Last month, UNH’s Board of Directors appointed Andrew Witty as the company’s new chief executive officer, succeeding David S. Wichmann. Witty comes with an extraordinary breadth and depth of health care experience, sophisticated strategic thinking and outstanding leadership development skills, making him well-positioned to help the company grow and deliver for stakeholders.
In January, UNH expanded the availability of virtual care with local physicians and introduced a new Virtual Primary Care service designed to enable access to medical services in a simpler and more convenient way. These services should improve people’s access to local care providers, thereby paving a path for the company to attract many potential customers.
Despite being impacted by COVID-19 care costs, continued voluntary consumer and customer assistance initiatives, and other pandemic-related factors, UNH fourth quarter results reflect continued strong performance. Its total revenues have increased 7.5% year-over-year to $65.47 billion in the fourth quarter ended December 31, 2020. Its revenue for the UnitedHealthcare segment has risen 4.3% from its year-ago value to $50.33 billion, while its Optum segment revenue grew 20.3% to $35.85 billion.
Analysts expect UNH’s revenues to grow 7.5% year-on-year to $69.23 billion in the current quarter, ending March 31, 2021. A consensus EPS estimate of $4.34 for the first quarter represents a 16.7% improvement from its year-ago value. The company has an impressive earnings surprise history; it beat the Street EPS estimates in each of the trailing four quarters. The stock has gained 17.1% over the past six months.
UNH’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
UNH has a B grade for Sentiment, Quality and Value. It is currently ranked #2 of 10 stocks in the Medical - Health Insurance industry. This industry is rated B.
Click here to see the additional POWR Ratings for UNH (Momentum, Growth, and Stability).
Cigna Corporation (CI)
CI is a global health service company that delivers choice, predictability, affordability and access to quality care through integrated capabilities and connected, personalized solutions. CI provides insurance and related products and services in more than 30 countries. It primarily operates through– Health Services, Integrated Medical, International Markets, and Group Disability and Other segments.
In February, Evernorth, the leading health services portfolio of CI, acquired MDLIVE, a virtual care delivery platform. The acquisition is expected to expand Evernorth's capabilities to deliver a more affordable, convenient and connected patient care experience.
In January, CI added Iora Health, an innovative primary care provider group, to its rapidly expanding Medicare Advantage (MA) network. The company’s value-based care agreement with Iora has paved the way for MA customers to access the primary care practices of Iora.
Last December, New York Life, America’s largest mutual life insurer, announced the acquisition of CI’s group life, accident, and disability insurance business for $6.3 billion. The divestment has brought CI’s debt levels down significantly and streamlined its operations. The company is now focusing on improving its profitability by controlling medical care costs.
CI’s results reflect revenue and earnings growth in a dynamic, rapidly changing environment, driven by focused execution across the ongoing businesses. Its total revenues have increased 14% year-over-year to $41.67 billion in the fourth quarter, ended December 31, 2020, led primarily by strong performance in its Evernorth segment. Its net income has risen 323.2% from its year-ago value to $4.14 billion, yielding an EPS of $11.45.
Analysts expect CI’s revenues to grow 3.6% year-on-year to $165.80 billion in its fiscal 2021 ending March 31. A consensus EPS estimate of $20.28 for the current year represents a 9.9% improvement from the year-ago value. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in three of the trailing four quarters. The stock has gained 41.2% over the past six months.
CI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to Buy in our rating system. CI has a B grade for Quality and Growth, and an A for Value. It is also ranked #1 of 10 stocks in the Medical – Health Insurance industry.
Beyond what we stated above, we also have given CI grades for Sentiment, Momentum and Stability. Get all the CI ratings here.
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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UNH shares were trading at $354.16 per share on Friday afternoon, up $1.06 (+0.30%). Year-to-date, UNH has gained 0.99%, versus a 5.07% rise in the benchmark S&P 500 index during the same period.
About the Author: Rishab Dugar
Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands.
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