Insurers Overtake Hospital Stocks Ahead of Earnings
(Bloomberg) -- After six months of underperforming their hospital peers, health insurers are back in the lead just in time for the start of the second-quarter earnings season.
Managed-care stocks, which had slumped as much as 5 percent this year, are moving higher as deals activity picked up and the harsh flu season that helped boost hospitals more than 25 percent, ended. Analysts had previously predicted that this rotation would reverse, bringing the two sectors back in line with their long-term trends.
As UnitedHealth Group Inc. kicks off second-quarter earnings on Tuesday, the risk-reward balance for insurers looks “favorable,” according to Leerink analyst Ana Gupte. She’s looking for another season of “likely beats and raises” as medical costs appear to be well-controlled.
Jefferies analyst David Windley, however, is a little more cautious. Sell-side estimates for managed care are high and may leave little room for the sector’s usual beats, he warned in a July 12 note.
And not everyone is in agreement about the outlook for hospitals. Surveys show that patient utilization trends have weakened, likely painting a negative backdrop for the second half of the year, according to Bloomberg Intelligence’s Jason McGorman.
But given the conservative guidance from these companies, “investor expectations in our view are for not much more than an in-line” quarter for bellwether HCA Healthcare Inc. and Tenet Healthcare Corp., leaving some potential for a beat, Leerink’s Gupte wrote.
HCA is the first hospital company due to report, with its release scheduled for July 25.
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