By Tomi Kilgore, MarketWatch
Shares of several health care companies rose Tuesday to buck the broader stock market selloff, after Deutsche Bank analyst George Hill said the “muddled” race for the Democratic nominee suggests the political threats to health care reform are fading.
Hill’s research note to clients, in which he raised is stock price targets on the managed care organizations (MCOs), comes after Bernie Sanders’ narrow victory in the New Hampshire primary, where Elizabeth Warren placed fourth and failed to add any delegates. Sanders and Warren are advocates for “Medicare for All,” which would in effect replace the current health insurance system with a single-payer national health insurance program.
Hill said the he believes that outcome is the “all-clear” to own shares of health-care service companies.
“In short, the candidates that represent the perceived risk to substantive health-care reform are either fading quickly in the polls (Warren) or appear unelectable (Sanders) in the eyes of health-care investors, given the perceived threat that his more radical policies pose to the sector and economy,” Hill wrote.
Here are Hill’s price target changes, how the targets compare with current share prices as of Tuesday afternoon, and the how the stocks have performed since the end of September, when Warren had took a lead in primary polls.
|Company||New price target||Old price target||New target’s implied gain from price||Stock’s gain since end of September|
|CVS Health Corp.||$109||$97||51.9%||13.8%|
|Molina Healthcare Inc.||$206||$156||37.9%||36.2%|
|UnitedHealth Group Inc.||$362||$297||20.1%||38.7%|
|Deutsche Bank, FactSet, MarketWatch|
“It is becoming increasingly clear that the election of a Democratic presidential candidate that leads to sweeping health-care reform seems remote,” Hill wrote. As a result, he suspects the rally for MCO shares will continue and raised target prices across the space.
Hill said conversations with investors and recent polls suggest Bernie Sanders seems likely to get the Democratic nomination, but may be “unable to galvanize the party” and would likely lose to Donald Trump in a general election.
And with Warren fading, all other democratic candidates are considered health-care policy “moderates,” which would lead to neutral to positive outcomes for health-care service stocks.
Shares of UnitedHealth Group Inc. /zigman2/quotes/210453738/composite UNH +1.71% rose 0.9% in afternoon trading, CVS Health Corp. /zigman2/quotes/209664499/composite CVS +2.07% tacked on 0.6%, Cigna Corp. /zigman2/quotes/208431372/composite CI +3.66% gained 0.8%, Anthem Inc. /zigman2/quotes/203808743/composite ANTM +2.28% advanced 0.9%, Centene Corp. /zigman2/quotes/208900023/composite CNC -0.54% rallied 2.4% and Molina Healthcare Inc. /zigman2/quotes/205492029/composite MOH +0.82% climbed 3.0%. Humana Inc.’s stock /zigman2/quotes/203095337/composite HUM +0.67% was an outlier, falling 1.0%.
The moves comes as the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +2.17% shed 153 points, or 0.5%, and the S&P 500 index /zigman2/quotes/210599714/realtime SPX +1.23% fell 0.2%.