7 Health Insurers Poised to Beat Earnings Estimates in Q1

As the COVID-19 pandemic continues to wreak havoc on different business sectors far and wide, the health insurance industry is too not left unscathed by its adverse impact.

Last month, Fitch Ratings revised its outlook for the health insurance segment from stable to negative, citing "expectations for an adverse effect on industry fundamentals related to COVID-19." The rating agency projects steep claims costs associated with the spread of the virus, which will dent profitability and debt-service metrics. The rating giant believes that the pandemic will drain earnings for health insurers in 2020. Also weakness in employment scenario will induce a loss in Commercial business.

However, the immediate effect of the coronavirus breakout will not be that severe in the first-quarter earnings since much of the business damages occurred in the second half of March.

Therefore, the industry participants are likely to see an increase in first-quarter revenues on higher premium across Commercial, Medicare Advantage and Medicaid insurance plans.  

Significantly, the COVID-19 pandemic will provide some respite to insurers’ Medical Loss Ratio (MLR), which is the ratio of premium spent on claims.

Since the hospital’s elective procedures and surgeries are put on hold, this will positively impact the MLR of the health insurers in the form of lower claim outgo. However, the impact of this MLR will be moderate in the first quarter and more visible in the future quarters.  A decline in MLR will aid insurers’ margins in the to-be reported quarter.

However, decreased interest rates will hurt the investment income in the to-be-reported quarter because of low investment yields.

However, for the first quarter of 2020, we do not expect a massive blow from the COVID-19 fallout but presume players to be conservative in their earnings guidance.

In the first quarter, the health insurance industry has declined 20.7%, compared with the Zacks S&P composite's decrease of 19.5%.

Selecting the Winners

This is the right time for you to pick some banking stocks that are well-poised to beat on earnings in their upcoming releases.

Choosing stocks with earnings beat potential might be difficult unless one knows the process of shortlisting. One way to do the job is by opting for stocks with the perfect combination of a top Zacks Rank — Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — and a positive Earnings ESP.

Earnings ESP is our proprietary methodology to identify stocks that have high chances of delivering a positive surprise in their upcoming earnings announcement. It shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. Our research shows that for stocks with this ideal combination, chances of beating estimates are as high as 70%.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

7 Major Health Insurers

Here are seven major health insurance stocks that have the right mix of elements to pull off positive earnings surprises this reporting cycle:

UnitedHealth Group Inc. UNH has an Earnings ESP of +4.01% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. The stock’s earnings surpassed estimates in each of the trailing four reported quarters, the average being 3.65%.

Centene Corp. CNC has an Earnings ESP of +5.38% and a Zacks Rank of 3 at present. The stock’s earnings surpassed estimates in three of the last four quarters,  missing the same in one. The average positive surprise is 3.27%.

Anthem Inc. ANTM has an Earnings ESP of +4.93% and is Zacks #3 Ranked. The company’s earnings surpassed estimates in three of the preceding four quarters,  lagging the mark in one, the average positive surprise being 0.92%.

Humana Inc. HUM has a Zacks Rank of 2 and  an Earnings ESP of +10.01%. Its earnings surpassed estimates in each of the previous four quarters. The positive surprise is 8.28%, on average.

Molina Healthcare, Inc. MOH has an Earnings ESP of  +8.00% and a Zacks Rank of 2, currently. Its earnings surpassed estimates in each of the last four reported, the average being 13.79%.

Cigna Corp. CI has an Earnings ESP of +1.22% and a Zacks Rank of 3. The stock’s earnings surpassed estimates in each of the trailing four reported quarters. The positive surprise of 6.58%, on average.

Magellan Health, Inc. MGLN is a #3 Ranked stock and has an Earnings ESP of +39.26%. The company’s earnings surpassed estimates in two of the previous four reported quarters, falling short of the consensus mark in the other two. The average beat is 0.59%.

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UnitedHealth Group Incorporated (UNH): Free Stock Analysis Report
Humana Inc. (HUM): Free Stock Analysis Report
Cigna Corporation (CI): Free Stock Analysis Report
Molina Healthcare, Inc (MOH): Free Stock Analysis Report
Magellan Health, Inc. (MGLN): Free Stock Analysis Report
Centene Corporation (CNC): Free Stock Analysis Report
Anthem, Inc. (ANTM): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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