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Raymond James downgraded 4 managed care corporations, together with the main business gamers UnitedHealth Group (NYSE:UNH) and Cigna Company (NYSE:CI), citing an inventory of rising headwinds such because the uptick of viral ailments, flu, RSV, and COVID.
“The “Triple Risk” of the flu, RSV, and COVID continues to worsen as we head into winter months,” the analysts led by John Ransom wrote, including that its impression will result in higher-than-expected medical loss ratios in This fall.
Whereas flu and RSV instances have risen far greater than the pre-pandemic ranges, the severity of RSV instances, specifically, seems to have exceeded that throughout the earlier years, Ransom and the group famous.
As different causes for the downgrades, the analysts cited the hostile impression from a number of upcoming coverage outcomes, together with Medicare Benefit (MA) Superior Discover and a “lower than supreme 2023 setup” following robust comps in 2022 when MLRs/utilization remained low.
The analysts additionally pointed to the final consensus that “the mixture of largely supreme elements in 2022” is unlikely to repeat.
Regardless of the downgrades, the analysts stay constructive on UnitedHealth (UNH) and Cigna (CI). Reducing the ranking on Cigna (CI) to Outperform from Robust Purchase with a $370 per share goal, Raymond James famous the corporate’s low publicity to Medicare Benefit and the sturdy efficiency of its pharmacy profit supervisor, which is anticipated to revenue from a possible biosimilar upside in 2023.
With the same ranking choice however a $615 worth goal on UnitedHealth (UNH), the analysts highlighted the “offsets from its various income streams, the tail impact from $20B of YTD M&A, and a few offset from its payment for service publicity in Optum Well being.”
Regardless of positives on the long-term setup of major care supplier Oak Avenue Well being (OSH) and mid-cap managed care firm Alignment Healthcare (ALHC), the analysts downgrade the shares to Market Carry out from Outperform, citing the near-term danger from their 100% give attention to MA.
“The excellent news is that almost all of those ambiguities/potential negatives ought to clear in January or February,” they added.
Nevertheless, the agency maintained the Outperform ranking on pharmacy retailer CVS Well being (CVS), citing its valuation and “hedged” publicity to greater flu/COVID instances the place drug retailer earnings anticipated to offset the medical development at its insurance coverage arm Aetna.
CVS Well being (CVS) has underperformed its rivals, UnitedHealth (UNH) and Cigna (CI), this 12 months with a ~7% decline, as proven on this graph.
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