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Raymond James downgraded four managed care companies, including industry leaders UnitedHealth Group (NYSE:UNH) and the Cigna Group (NYSE:CI), citing a growing list of headwinds such as an increase in viral diseases, influenza, RSV and COVID.
The “triple threat” of influenza, RSV and COVID continues to worsen as we enter the winter months,” wrote analysts led by John Ransom, adding that Its impact will result in a higher-than-expected medical loss ratio in Q4.
Although flu and RSV cases have been much higher than pre-pandemic levels, the severity of RSV infections, in particular, appears to have exceeded levels in previous years, Ransom and team save note.
For other reasons for the downgrade, analysts cited adverse effects from several upcoming policy outcomes, including the Medicare Advantage (MA) Advanced Notice and “poor 2023 setup” ideal” after tough offsets in 2022 when MLR/use remains low.
Analysts also point to the general consensus that “the ideal combination of most factors by 2022” is unlikely to be repeated.
Despite the downgrade, analysts still give UnitedHealth a positive rating (UNH) and Cigna (CI). Downgrade on Cigna (CI) outperformed Strong Buy with a target of $370 per share, Raymond James noted that the company’s low exposure to Medicare Advantage and the effective performance of the company’s pharmaceutical benefits management division company, is expected to profit from the potential price hike of biosimilars by 2023.
With the same rating decision but $615 price target for UnitedHealth (UNH), the analysts highlighted “offset from its diversified revenue streams, a tail effect from the US$20 billion YTD M&A, and some offsetting from service contact fees in Optum Health .”
While there are positives in the long-term establishment of a primary care provider Oak Street Health (OSH) and mid-cap management care company Alignment Healthcare (ALHC), analysts downgraded the stocks to Market Performance from Outperform, citing short-term risk due to their 100% MA focus.
“The good news is that most of these ambiguities/potentially negative will clear up by January or February,” they added.
However, the company maintains an Outperform rating for pharmaceutical retailer CVS Health (curriculum vitae), citing valuation and “insured” risk for higher flu/COVID cases, where drug store earnings are expected to offset medical trends in spending. Aetna insurance branch.
CVS Health (curriculum vitae) has underperformed its competitor, UnitedHealth (UNH) and Cigna (CI), this year with a decrease of ~7%, like shown in this chart.
