Given hefty rate increases, health plans should enjoy improved profits in 2010. That’s the conclusion of our annual Outlook for Managed Care report (due out shortly). It’s also generally the conclusion of Wall Street analysts. But there are some dissenters and caveats. Here’s the good and bad from four analysts.
“Commercial risk-based pricing appears to be strengthening for 2010 which could lead to improvement in Commercial MLRs….We enter 2010 with a more favorable near-term view although are cautious longer-term due to health reform earnings risks.” — Scott Fidel, Deutsche Bank Securities. Buy: Aetna, Magellan, WellPoint. Sell: None
”In 2010, we expect the operating margin to improve as the price and medical cost trend environment has stabilized, and SG&A levels may improve as MCOs focus on what they can control. It seems unlikely that operating margins will deteriorate further into 2010.” — Thomas Carroll, Stifel Nicolaus. Buy: UnitedHealth, WellPoint. Sell: None.
“We think most of the larger, diversified managed care plans are pretty fairly valued at this point, as the group rose more than 50% last year…While we know that pricing is better this year, there is still economic related cost and enrollment pressures. Moreover, while reform certainly turned out to be a lot better than the worst case fears, it is still bad for the group and it will put pressure on margins and earnings in the future.” — Carl McDonald, Oppenheimer. Buy: Aetna, Amerigroup, Cigna, Health Net, Humana, Magellan, Triple-S, Universal American, WellPoint. Sell: Centene, eHealth, UnitedHealth
“We Continue To Prefer Companies With Less Exposure To Health Care Reform Risks. This leads us to favor the Medicare and Medicaid businesses.” Matt Perry, Wachovia. Buy: Amerigroup, CVS Caremark, HealthSpring, Humana, WellPoint. Sell: None.
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