Caution is the watchword as Leerink Swan initiated coverage on the managed care industry with a buy rating for Aetna and a sell rating for WellPoint. Leerink was neutral on a handful other other managed care companies, including Cigna, Coventry, Humana and UnitedHealth. Here are some key quotes from the Leerink research report by analysts Jason Gurda and Nell Bhalodkar.
“We are cautious on the outlook for managed care stocks over the next year as we believe a deepening recession will increase concerns about commercial enrollment trends, investment portfolios, and hospital cost shifting.”
“While we anticipate continued near-term stabilization in underwriting margins, we are cautious longer-term as we believe commercial utilization rates are unlikely to change…and that it will be difficult for the managed care industry to remain disciplined on pricing.”
“Near term we believe potential compromises on healthcare reform could be a positive for Medicare Advantage. However, as the year progresses, we believe rapidly widening deficit projections will raise the threat of broad Medicare and Medicaid cuts in 2010.”
“The outlook for Medicaid plans is mixed…On a positive note, we anticipate significant increases in membership as a result of the recessions and the stimulus package. However, state finances remain extremely fragile, and we believe that the outlook for pricing is uncertain.”
Aetna “has demonstrated better execution in gaining market share and growing operating earnings than most of its peers….Aetna is the only company in the group that we believe will increase its commercial enrollment growth during 2009.”
“WellPoint has experienced several issues related to the integration of previous acquisitions, including inadequate pricing in 2008….We
are somewhat concerned about the company’s ability to rapidly identify and respond to new cost trend developments.”
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