This 12 months's presidential election is already sending healthcare stocks on a wild ride. In the past, political power shifts have led to “increased volatility” across the healthcare sector, prompting investors to “seek safe areas,” Raymond James analyst Chris Meekins said in a July 7 note. “This election will likely produce different, binary, opposing outcomes in healthcare policy depending on who wins.” With Affordable Care Act subsidies set to run out next 12 months and Medicare Advantage plans coming under increasing scrutiny in recent months, health insurers could also be much more sensitive to this pattern than usual. In fact, it already appears to be emerging in trading of managed care stocks. Earlier within the week, traders appeared to have concluded that former U.S. President Donald Trump was constructing an insurmountable lead over Joe Biden. The incumbent president's campaign has been in trouble since Biden's disastrous performance on the June 27 debate. Calls for him to drop out of the race briefly died down after a failed assassination attempt on Trump, but pressure mounted again on Thursday. Looking at UnitedHealth Group's share price against the backdrop of those headlines gives a way of the mood swings. Through Thursday's close, the stock had underperformed the market, up 7% 12 months thus far. But shares have risen nearly 17% for the reason that presidential debate. The stock hit a brand new 52-week high in trading Wednesday, but has pulled away from that top in recent sessions when it looked like Biden might withdraw. UNH 1M-Mount UnitedHealth stock last month. The broader health care sector, a defensive “late-cycle” group, generally struggles in election years and the 12 months after — and historically outperform the second 12 months after an election, Meekins noted. Most healthcare sectors also do “significantly better” when a Republican wins the presidency. The broad universe of healthcare stocks has underperformed by about 19% in the course of the Biden presidency, the analyst said. What a Republican Victory Means Analysts expect Republican leadership would cut back regulatory scrutiny by the Federal Trade Commission and the Justice Department while also pushing down drug prices. But it could mean the top of expanded individual healthcare subsidies. That's essential because that profit, introduced under the ACA or Obamacare, lowers monthly premiums and out-of-pocket costs for middle- and low-income individuals. It expires at the top of 2025, and a Republican victory could be sure that. Raymond James's Meekins said the top of subsidies could lead on to large numbers of newly uninsured people, which could hurt hospitals and managed care firms, which might see lower enrollment. On the opposite hand, analysts see a Trump victory as positive for Medicare Advantage providers. Consider Centene, Molina Healthcare, UnitedHealth and Humana. Medicare Advantage is a style of Medicare medical health insurance plan offered by private insurance firms. These generally offer the identical coverage as original Medicare under annual contracts, but often with additional advantages corresponding to vision and dental insurance. “A Trump administration would be cheaper from a rate perspective, which would help alleviate some of the cost issues.” [Medicare Advantage carriers] “We have the crunch and the pressure they've felt on the medical cost side compared to what they've experienced so far under the Biden administration,” Meekins said. History bodes well for the group. Managed care firms historically buck the overall trend of healthcare stocks and outperform expectations in the primary 12 months after an election, based on Raymond James. Analysts at several firms, including Raymond James, Bernstein and RBC Capital Markets, consider UnitedHealth, Humana and CVS Health can be amongst the most important beneficiaries of a Trump victory. Recent gains at UnitedHealth, the biggest private insurer within the U.S., don't just reflect changing political winds. There's been a turnaround in investor enthusiasm on account of a powerful second quarter that has reignited confidence in the corporate's prospects. Jefferies analyst David Windley praised the corporate's efforts to chop costs and said it could lead on to a “superior 25 setup” for the stock. Windley sees a Trump victory resulting in membership growth, and UnitedHealth appears “best positioned to take advantage of the full economic opportunity.” He maintains a buy rating and $647 price goal on the stock, meaning shares could rise nearly 15% from Thursday's close. RBC Capital Markets analyst Ben Hendrix said UnitedHealth would see probably the most immediate upside amongst managed care organizations under a Trump administration because its Optum unit would profit from an easing regulatory environment. Optum has contributed to the corporate's record profits by providing a variety of primary, specialty and urgent care services to just about 104 million consumers. In late February, the Justice Department launched an antitrust investigation to look at the role of giant conglomerates in rising health care costs. In addition to UnitedHealth and Humana, Raymond James analyst John Ransom also expects managed care provider Alignment Healthcare to profit from a Republican victory, as he sees those three names as having relatively high exposure to Republican-favored Medicare Advantage plans and fewer or no exposure to the ACA. Humana has lost greater than 15% this 12 months, but like UnitedHealth, its shares are up nearly 8% for the reason that presidential debate. Piper Sandler initiated coverage of Humana on June 25 with an obese rating and a $392 price goal, saying a “turnaround” is underway for the corporate, helped by a brand new CEO and expected growth within the Medicare Advantage market. “We believe the HUM brand has a durable competitive advantage … and we believe the company's purpose-built health care delivery and services infrastructure should improve outcomes and lower the cost curve through center-based, home and pharmacy care over time,” the corporate said, adding that the stock is cheaper than it appears. Telemedicine and drug provider GoodRx Holdings could also get a lift if a Republican victory eliminates subsidies increased by the ACA, Ransom said. Shares have risen greater than 20% for the reason that starting of the 12 months. “With millions of ACA members potentially losing their coverage, we believe GDRX could benefit as individuals would increasingly seek savings on prescription drugs,” he said. What a Democratic Victory Means If Democrats overcome their recent difficulties, whether with Biden or one other candidate, analysts see managed care names tied to the ACA and hospitals as winners. In that scenario, Bernstein analyst Lance Wilkes expects Centene to profit as the biggest Medicaid managed care organization. He has an outperform rating and a bullish $94 price goal on the stock, suggesting potential upside of greater than 43%. “We would see some headwinds to CNC's share price, but more limited this time around due to valuation levels and less focus on Medicaid reform,” he said. Centene shares are down greater than 11% year-to-date. Unlike UnitedHealth, shares are down 3% for the reason that June debate. Raymond James sees Oscar Health, HCA Healthcare and Tenet Healthcare as beneficiaries of a left-wing victory. “A Democratic victory would almost guarantee an extension of the Affordable Care Act's expanded subsidies, which would be clearly positive for OSCR,” Ransom said. About 95% of its members come from the ACA exchanges. Oscar Health shares are up a whopping 64% this 12 months, but have fallen 17% for the reason that debate aired. HCA and Tenet Healthcare would profit since the two have presence in Florida and Texas, he said. The two markets account for about 36% of all ACA members. When Raymond James launched Oscar in late March with an outperform rating and a $20 price goal — which is now 33% above the stock's last closing price — Ransom acknowledged that the corporate's fortunes can be sensitive to news of ACA subsidies. But he expects Oscar's latest CEO, the previous head of CVS Health-owned Aetna, to spice up earnings growth by cutting costs.
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