A strong U.S. economy, aging population and boom in Medicaid and Medicare business bode well for health insurers in the long run. The last few quarters also witnessed active mergers and acquisitions in the industry, leading to a series of consolidations. Despite frequent political interference, the industry remains a promising platform for investment owing to rising demand for value-based health plans, increasing number of baby boomers and better health outcomes through usage of analytics, artificial intelligence plus other advanced technologies.
The healthcare insurance industry is poised for sustained growth across markets, mainly by enhancing government programs. The changing U.S. demography, product modifications and medical cost management also contribute to the progress of industry players.
Further, consolidations led to market share wins and business diversification for the players involved. One pending mega merger is that of Centene Corporation CNC with WellCare Health Plans, Inc. WCG, which is expected to close by the first half of 2020.
The overall bullish scenario makes us believe that growth will be consistent in this industry, which should boost prospects of companies with strong business fundamentals. The buoyancy in the health insurance space is confirmed by its Zacks Industry Rank within the top 24% (61 of 253).
Against this backdrop, let’s look at the two leading health insurers, namely Anthem Inc. ANTM and Humana Inc. HUM with respective market capitalization of $73.1 billion and $45.2 billion. Each stock has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Shares of Humana and Anthem have gained 9.4% and 18.1% year to date, respectively. The industry has rallied 12.6% year to date compared with the S&P 500 Index’s 24% increase.
Let's analyze certain other parameters to find out which company is better positioned.
Earnings Surprise History
A stock’s earnings surprise track helps investors get an idea about its performance in the previous quarters.
Both companies boast a decent earnings surprise record, having surpassed the Zacks Consensus Estimate in each of the last four quarters.
Humana managed to pull off average four-quarter beat of 8.56% while the same for Anthem reads 3.77%. This proves that Humana has an edge over Anthem here.
Return on Equity
Return on equity is a profitability measure, which accounts for profits generated on shareholders’ equity. Hence, higher ROE reflects the company’s efficiency in using shareholders’ funds and is preferred by all equity investors.
The ROE of 22.3% for Humana compares favorably with Anthem’s ROE of 15.6%.
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 15.78, Anthem is undervalued with a reading of 12.81 while Humana’s shares are expensive with a P/E ratio of 18.18.
Both companies have lower debt-to-equity ratio than the industry average of 65.8. However, Humana’s leverage ratio of 52.3 betters Anthem’s ratio of 62.3. Therefore, Humana is at an advantage over Anthem on this front.
For 2019, the Zacks Consensus Estimate for Anthem has moved 0.1% north to $19.43 in the past 30 days while the same for Humana has been revised 0.6% upward to $17.77.
Our comparative analysis shows that Humana is better-positioned than Anthem with respect to earnings surprise, return on equity, estimate revision and leverage. Meanwhile, Anthem scores higher in terms of price performance and valuation. As the scale is tilted in favor of Humana, the stock discernibly makes a more promising investment proposition.
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Anthem, Inc. (ANTM) : Free Stock Analysis Report
Centene Corporation (CNC) : Free Stock Analysis Report
WellCare Health Plans, Inc. (WCG) : Free Stock Analysis Report
Humana Inc. (HUM) : Free Stock Analysis Report
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