This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Health Care: Obamacare M&A Trumps Weak Earnings Outlook

Stocks in this article: MOH CNC WLP HUM AET

"Expect other companies with government exposure to see greater investor interest," wrote Credit Suisse analyst Charles Boorady in a July note to clients, highlighting Centene, Molina Healthcare, Humana (HUM), Coventry Healthcare (CVH) and Health Net (HNT) as other healthcare providers with high Medicaid and Medicare exposure.

Also in early July, Goldman Sachs analysts raised their price targets for Centene and Molina Healthcare, citing the likelihood of healthcare sector consolidation. " We see further consolidation likely following the announcement of WellPoint's proposed acquisition of Amerigroup, which reflects the push by the larger 'diversified' managed care names to broaden exposure to public sector managed care growth opportunities," wrote analyst Matthew Borsch in a July 11 note to clients, which upped Molina's price target 8% to $29 and Centene's by 12% to $39.

The court confirmed the Act's ability to force Americans to carry health insurance and compel insurers to cover people with pre-existing health conditions. It limited the extension of Medicaid, however, deeming it unconstitutional for the federal government to withhold money from states that don't comply with the Act. Some estimate that between 16 million to 20 million new Americans would be eligible to enroll in Medicaid through the Affordable Care Act.

While Medicaid players may be takeover targets, large scale merger efforts may be less likely after a generation of consolidation among healthcare giants. "We continue to assign a low probability ranking to UnitedHealth, WellPoint, and Aetna, as we think these companies are too large to merge with one another, owing to antitrust limits, among other factors, while we think an acquisition of one of these 'Big 3' by a company outside of managed care is also unlikely," Borsch said.

The M&A speculation comes amid a cloudy health care earnings profile. In the first quarter, diversified healthcare providers like Humana and Aetna and Medicaid-focused providers missed earnings per share estimates. Second quarter earnings concerns from Wall Street analysts center on how high loss ratios could go now that providers are mandated to accept customers with pre-existing medical conditions.

"WellPoint's announcement provided a welcome 'change of topic' from the post-SCOTUS ruling gloom in the managed care sector. However, our broader outlook remains mixed and we maintain our Neutral coverage view," noted Borsh of second quarter earnings expectations. "Beyond 2012, the longer-term growth story remains attractive, in our view, particularly at these valuations."

2 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,912.95 +108.15 0.61%
S&P 500 2,075.58 +4.93 0.24%
NASDAQ 4,778.4320 +13.0520 0.27%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs