3 Insurance Stocks Rated ‘Buy’ According to the POWR Ratings
Because the insurance industry is expected to benefit from the Fed’s now more hawkish stance, we think it could be wise to add fundamentally sound insurance stocks UnitedHealth Group (UNH),...
Because the insurance industry is expected to benefit from the Fed’s now more hawkish stance, we think it could be wise to add fundamentally sound insurance stocks UnitedHealth Group (UNH), Humana (HUM), and Molina Healthcare (MOH) to one’s portfolio. They are also rated ‘Buy’ in our POWR Ratings system. Read on.
The stock market has remained volatile amid concerns related to the rapid spread of the COVID-19 omicron variant and the Fed’s decision to accelerate the tapering of its asset purchases. On December 15, the Fed said it would phase out its bond-buying stimulus program by March—much faster than previously planned— and signaled that it would raise interest rates more aggressively to combat rising U.S. inflation.
The insurance industry's profitability has historically risen with rising interest rates. So, the Fed’s hawkish stance could benefit the industry. Furthermore, according to an Insurance Journal report, the global insurance market is expected to exceed $7 trillion in premiums for the first time by mid-2022, earlier than expected. Also, insurance premiums are expected to grow 3.4% in 2021, 3.3% in 2022, and 3.1% in 2023.
Given this backdrop, we think it could be wise to bet on quality insurance stocks UnitedHealth Group Incorporated (UNH), Humana Inc. (HUM), and Molina Healthcare, Inc. (MOH). They each have an overall ‘Buy’ rating in our proprietary POWR Ratings system.
UnitedHealth Group Incorporated (UNH)
Diversified healthcare company UNH in Minnetonka, Minn., operates through four segments: UnitedHealthcare; OptumHealth; OptumInsight; and OptumRx. It conducts its operations through a health benefits platform under UnitedHealthcare and a health services platform under Optum.
On December 1, 2021, UNH introduced a new health plan called the Doctors Plan of Arizona, which offers consumers in Southwest Arizona access to personalized and seamless customer support along with the potential to save up to 15% on premiums. The plan provides customers access to quality, affordable, patient-focused health care. This is expected to help it expand its reach.
UNH’s revenues for its fiscal third quarter, ended September 30, 2021, increased 11% year-over-year to $72.30 billion. The company’s earnings from operations increased 21.2% year-over-year to $5.70 billion. And its operating earnings from the UnitedHealthcare segment came in at $2.70 billion, up 28.5% year-over-year.
Analysts expect UNH’s EPS for the quarter ending December 31, 2021, to increase 71% year-over-year to $4.31. Its revenue for the quarter ending March 31, 2022, is expected to increase 11.8% year-over-year to $78.45 billion. Also, it has surpassed the Street’s EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 46.7% in price to close Thursday’s trading session at $495.38.
UNH’s strong fundamentals are reflected in its POWR Ratings. It has an overall A rating, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has a B grade for Growth, Stability, Sentiment, and Quality. In the B-rated Medical – Health Insurance industry, it is ranked #2 of 12 stocks. Click here to see the additional ratings of UNH for Value and Momentum.
Humana Inc. (HUM)
HUM is a health and well-being company that operates in the Retail; Group and Specialty; and Healthcare Services segments. The Louisville, Ky.-based company’s Retail segment consists of Medicare benefits, marketed to individuals or via group Medicare accounts. In contrast, its Group and Specialty segment consists of employer group commercial insured medical and specialty health insurance benefits. And its healthcare services segment includes services offered to its health plan members and third parties.
On November 22, 2021, HUM announced expanding its existing agreement with Allina Health to focus on value-based care for HUM’s Medicare Advantage members in Minnesota. The multi-year value-based care agreement, which will take effect on January 1, 2022, is expected to provide a more personalized approach.
For its fiscal third quarter, ended September 30, 2021, HUM’s adjusted revenue increased 11% year-over-year to $20.87 billion. The company’s non-GAAP pretax income increased 45.8% year-over-year to $802 million. Also, its non-GAAP EPS came in at $4.83, up 56.8% year-over-year.
For the quarter ending December 31, 2021, HUM’s EPS is expected to increase 150.9% year-over-year to $1.17. Its revenue is expected to increase 12.6% year-over-year to $23.36 billion. Also, it surpassed consensus EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 14.7% in price to close Thursday’s trading session at $460.54.
HUM’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has a B grade for Growth, Value, and Stability. HUM is ranked #1 out of 30 stocks within the Insurance – Life industry. To see the additional ratings of HUM for Momentum, Sentiment, and Quality, click here.
Molina Healthcare, Inc. (MOH)
MOH is a provider of managed healthcare services under the Medicaid and Medicare programs and through the state insurance marketplaces. The Long Beach, Calif.-based company operates through four segments: Medicaid; Medicare; Marketplace; and others. The Medicaid, Medicare, and Marketplace segments represent the government-funded or sponsored programs to which the company offers managed healthcare services.
On October 7, 2021, MOH announced that it had agreed to acquire the Medicaid Managed Long Term Care business of AgeWell New York. The company’s President and CEO, Joe Zubretsky, said, “The addition of AgeWell to Molina’s expanding New York footprint is not only complementary to our existing MLTSS business but also representative of our strategic growth strategy.”
MOH’s revenue for its fiscal third quarter, ended September 30, 2021, increased 40.2% year-over-year to $7.04 billion. The company’s premium revenue came in at $6.80 billion, up 42.6% year-over-year. Its consolidated MCR was 88.9%, compared to 85.9% in the year-ago period.
Analysts expect MOH’s EPS for the quarter ending December 31, 2021, to increase 639.2% year-over-year to $2.75. Its revenue for its fiscal 2021 is expected to increase 41.7% year-over-year to $27.53 billion. It surpassed the Street’s EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 52% in price to close Thursday’s trading session at $316.73.
MOH’s strong fundamentals are reflected in its POWR Ratings. It has an overall A rating, which equates to a Strong Buy in our proprietary rating system.
It has a B grade for Value and Quality. In the Medical – Health Insurance industry, it is ranked #3. Click here to see the ratings of MOH for Growth, Momentum, Stability, and Sentiment.
UNH shares rose $2.52 (+0.51%) in premarket trading Monday. Year-to-date, UNH has gained 43.98%, versus a 28.03% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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