Indeed, this year’s presidential election is already sending health-care stocks on a wild ride. Shifts in political control have historically created “increased volatility” in the health-care sector, prompting investors to “look for safe areas,” Raymond James analyst Chris Meekins said in a July 7 note. “This election is likely to produce mixed and contradictory health-policy outcomes depending on who wins.” With Affordable Care Act subsidies set to expire next year and scrutiny of Medicare Advantage plans intensifying in recent months, health insurers may be more sensitive to this pattern than usual. Indeed, this is already evident in how managed-care stocks are trading. Earlier in the week, traders seemed to conclude that former President Donald Trump was building an insurmountable lead over Joe Biden. The incumbent president’s reelection campaign has been struggling since Biden’s disastrous debate performance on June 27. Calls for him to drop out of the race briefly subsided after a failed assassination attempt on Trump, but on Thursday the pressure was mounting again. A look at how UnitedHealth Group shares have traded amid these headlines gives a sense of the volatility in sentiment. As of Thursday’s close, the stock had underperformed the market with a 7% gain year to date. However, since the presidential debate, shares have gained about 17%. The stock hit a new 52-week high in trading on Wednesday, but has moved away from its high in recent sessions as it began to look like Biden might step down. UNH 1M mountain UnitedHealth stock over the past month. Meekins noted that the broader health care sector, a “late-cycle” defensive group, generally struggles in election years and the year after — and historically outperforms in the second year after an election. Most health care sectors also perform “much better” when Republicans win the presidency. The analyst said the broad universe of health care stocks has underperformed about 19% during a Biden presidency. What a GOP win means Analysts expect Republican leadership to reduce regulatory scrutiny from the Federal Trade Commission and the Justice Department, while continuing to lower drug prices. However, it could mean the end of expanded individual health care subsidies. That’s important because the benefit, created under the Affordable Care Act, or Obamacare, reduces monthly premiums and out-of-pocket costs for middle- and low-income individuals. It’s set to expire at the end of 2025, and a GOP sweep could ensure that. Raymond James’ Meekins said the end of the subsidies could lead to a large number of newly uninsured people, hurting hospitals and managed care companies, which would see enrollment decline. On the other hand, analysts see a Trump win as a positive for Medicare Advantage companies. Think Centene, Molina Healthcare, UnitedHealth, Humana and others. Medicare Advantage is a type of Medicare health plan offered by private insurers that, through annual contracts, provides the same coverage as original Medicare, but often with additional benefits like vision and dental coverage. “A Trump administration would be more accommodating from a rate perspective, which would help alleviate some of the cost issues that (Medicare Advantage companies) have been feeling and the pressure they’ve been feeling on the medical costs side, compared to what they’ve been feeling under the Biden administration so far,” Meekins said. History bodes well for the group. According to Raymond James, managed care companies have historically bucked the broader trend in healthcare stocks and outperformed in the first year after an election. Analysts from several firms, including Raymond James, Bernstein and RBC Capital Markets, believe UnitedHealth, Humana and CVS Health will be among the biggest beneficiaries of a Trump win. The recent gains for UnitedHealth, the largest private insurer in the United States, don’t just reflect the shifting political winds. There’s been a shift in investor enthusiasm due to a strong second quarter that has reignited confidence in the company’s outlook. Jefferies analyst David Windley praised the company’s cost-cutting efforts, saying they could lead to a “2025 outperformance” for the stock. Windley sees a Trump win as a boost to membership growth, and UnitedHealth appears “best positioned to take advantage of the full economic opportunity.” He has a buy rating and a $647 price target on the stock, meaning the shares could jump about 15% from Thursday’s close. RBC Capital Markets analyst Ben Hendrix said UnitedHealth would see the biggest immediate upside among managed care organizations under Trump as its Optum unit benefits from a looser regulatory environment. Optum has helped fuel the company’s record earnings by offering a range of primary, specialty and urgent care services to about 104 million consumers. In late February, the Justice Department launched an antitrust investigation into the role that the giant conglomerates have played in rising health care costs. Along with UnitedHealth and Humana, Raymond James analyst John Ransom expects managed care company Alliage Healthcare to benefit from a GOP sweep, saying all three names have relatively high exposure to Republican-favored Medicare Advantage plans and little or no exposure to the Affordable Care Act. Humana has lost more than 15% this year, but like UnitedHealth, its shares have risen about 8% since the presidential debate. Piper Sandler initiated coverage of Humana with an overweight rating and a $392 price target on June 25, saying the company was undergoing a “transformation,” helped by a new CEO and expected growth in the Medicare Advantage market. “We believe the HUM brand has a durable competitive moat … and we believe the company’s healthcare delivery infrastructure and tailored services should improve outcomes and bend the cost curve through center-based care, home care and pharmacy over time,” the firm said, adding that the stock is cheaper than it looks. GoodRx Holdings, which specializes in telehealth and prescription drugs, could also get a boost if a Republican sweep repeals enhanced subsidies under the Affordable Care Act, Ransom said. Shares are up more than 20% year to date. “With millions of Affordable Care Act members potentially losing coverage, we think GDRX could benefit as individuals increasingly seek out prescriptions,” he said. What a Democratic win means If Democrats overcome their recent struggles, either with Biden or another candidate, analysts see managed care names tied to the Affordable Care Act and hospitals as winners. In that scenario, Bernstein analyst Lance Wilkes expects Centene to benefit as the largest Medicaid managed care organization. Ransom said he has an Outperform rating and a $94 bullish price target on the stock, indicating more than 43% upside potential. “We will see some headwinds to the stock price for CNC, but they are more limited due to valuation levels and less focus on Medicaid reform this time around,” he said. Centene shares are down more than 11% year to date. Unlike UnitedHealth, shares are down 3% since the June debate. Raymond James sees Oscar Health, HCA Healthcare and Tenet Healthcare as beneficiaries of a left-wing victory. “A Democratic sweep would almost guarantee the extension of expanded Affordable Care Act subsidies, which would be a clear positive for OSCR,” Ransom said. About 95% of its members come from ACA exchanges. Oscar Health shares are up a whopping 64% this year, but the stock is down 17% since the debate aired. It would also benefit HCA and Tenet Healthcare, he said, given the pair’s exposure to Florida and Texas. The two markets account for about 36% of total ACA enrollment. When Raymond James launched Oscar in late March with a top-perform rating and a $20 price target — now 33% above the stock’s most recent close — Ransom acknowledged that his fortunes would be sensitive to the news about ACA subsidies. Still, he expects Oscar’s new CEO, the former head of CVS Health-owned Aetna, to boost earnings growth by cutting costs.
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The Trump Deal Has Split Healthcare Stocks Into Two Camps. How Do We Play the Next Moves?
