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
TheStreet Open House

Will GDP Revision Push Health Stocks Like Humana, Aetna Over a Cliff?

Stocks in this article: HUMUNHAETCIWLP

NEW YORK (TheStreet) -- Today's Q1 GDP report surprised many. The headline number -- overall U.S. GDP -- was chopped to a 2.9% annualized drop, down substantially from the previous reading of a 1.0% drop. That means that the economy is shrinking at a rate of nearly 3% a year.

By contrast, in the fourth quarter of 2013, GDP grew at an annualized 2.6%. This doesn't look good.

Millennials Inheritance Not Guaranteed: Boomer Parents Overspending

The Truth About Rental Cars and Insurance

Avoiding the 60-Day IRA Rollover Rule

According to Ian Shepherdson of Pantheon Economics, "Two-thirds of the revision is in consumption, cut to +1.0% from +3.1%. Almost all of this huge hit is in the health care services component, cut to -1.4% from +9.1%."

Estimates on health care spending seem to have been widely exaggerated if we believe in this huge revision downward in spending. Obamacare may have decreased health spending.

And with news like this, it is rather amazing that the health care sector is not selling off today.

Shares of Humana (HUM), UnitedHealth (UNH), Aetna (AET), Cigna (CI) and WellPoint (WLP) are all positive on the day. These stocks are up substantially this year, prompting a couple of big questions for investors.

Could today's revision downward in health care spending be a sign that trouble is ahead for the sector? Or does today's action in the sector tell us that the GDP revision downward is merely an anomaly that will again be revised in the coming weeks?

It will likely be some time before we know the real truth about the revisions today. Still, investors should be mindful of the risk this report suggests, especially given the large price appreciation in the sector so far this year.

Let's look at what TheStreet Ratings has to say about Humana and Aetna stocks. TheStreet Ratings team rates HUMANA INC as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

"We rate HUMANA INC (HUM) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, attractive valuation levels, good cash flow from operations and solid stock price performance. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Compared to its closing price of one year ago, HUM's share price has jumped by 50.40%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, HUM should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 16.8%. Since the same quarter one year prior, revenues rose by 11.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • HUM's debt-to-equity ratio is very low at 0.27 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.47, which illustrates the ability to avoid short-term cash problems.
  • Net operating cash flow has significantly increased by 62.86% to $671.00 million when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 37.82%.

1 of 2

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!
DOW 16,399.67 +19.26 0.12%
S&P 500 1,904.01 +17.25 0.91%
NASDAQ 4,316.0740 +57.6360 1.35%

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