Due to their defensive characteristics, healthcare stocks are an exception in an uncertain economic environment. Hence, despite the multiple negative macro factors, such as high inflation, rising interest rates, and slowing economic growth, last year was favorable toward healthcare stocks. Over the past three months, the S&P 500 Health Care Sector index has gained 10.5%.
An aging population and rapid innovation in pharmaceuticals and treatments to increase longevity should bolster the healthcare sector’s growth prospects. According to Verified Market Research, the global healthcare market is expected to reach $665.37 billion by 2028.
Moreover, the Centers for Medicare and Medicaid Services estimates U.S. health spending to reach $6.2 trillion by 2028, providing excellent long-term investment opportunities.
Thus, it could be wise to invest in fundamentally sound healthcare stocks, CVS Health Corporation (CVS), Cardinal Health, Inc. (CAH), and Molina Healthcare, Inc. (MOH), which are expected to deliver robust returns in 2023.
CVS Health Corporation (CVS)
CVS is a health service provider operating through four segments: Health Care Benefits; Pharmacy Services; Retail/LTC; and Corporate/Other. Its offerings include health & wellness services, health plans, pharmacy services, and prescription drug coverage.
On December 15, 2022, the company’s board of directors declared a quarterly dividend of $0.605 per share on its common stock, reflecting an increase of 10% from the previous quarter, payable on February 1, 2023. CVS’ four-year average dividend yield is 2.77%, and its current dividend translates to a 2.70% yield. Its dividends have grown at a 3.2% CAGR over the past three years and a 1.9% CAGR over the past five years.
Earlier in the same month, CVS announced the opening of its first MinuteClinic locations in northern Delaware. MinuteClinic would provide high-quality, affordable, and convenient care for acute and chronic conditions for patients aged 18 months and older.
“With only 16.4% of the primary care physicians needed currently available in Delaware, we are focused on expanding our presence to help increase access to high-quality, affordable health care for people in the communities where they live and work.”, said Creagh Milford, Senior Vice President of Retail Health at CVS.
CVS’ total revenue for the fiscal third quarter that ended September 30, 2022, increased 10% year-over-year to $81.16 billion. The company’s adjusted operating income grew 3.9% year-over-year to $4.23 billion, while its adjusted attributable net income rose 5.3% from the year-ago value to $2.76 billion. Also, its adjusted EPS increased 6.1% year-over-year to $2.09.
Analysts expect CVS’ EPS and revenue for the fiscal year 2022 to increase 2.8% and 7.7% year-over-year to $8.64 and $314.60 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has gained marginally over the past three months to close the last trading session at $89.75.
CVS’ POWR Ratings reflect its solid prospects. It has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
In addition, CVS has an A grade for Growth and a B for Value, Stability, and Sentiment. It is ranked first out of four stocks in the B-rated Medical – Drug Stores industry. Click here to see the other ratings of CVS for Momentum and Quality.
Cardinal Health, Inc. (CAH)
CAH is an integrated healthcare service and solutions provider. It offers customized solutions for healthcare organizations like hospitals, pharmacies, ambulatory surgery facilities, clinical laboratories, and patients receiving care at home. The company operates through two segments: Pharmaceutical and Medical.
On November 15, 2022, CAH launched Velocare, a supply chain network and last-mile fulfillment solution that can deliver vital goods and services needed for hospital-level care at home to patients in a couple of hours. Considering the complexity of supply chain logistics being one of the major challenges to health systems, this alliance is expected to transform patient care delivery.
Through Velocare, CAH would demonstrate its capacity to function and expand within the changing hospital-at-home paradigm and advance the concept of care anywhere. Additionally, the collaboration should increase scalability and effectiveness, ultimately leading to better patient results.
On November 8, 2022, CAH declared a quarterly dividend of $0.4957 per share from the company’s capital surplus, payable to its shareholders on January 15, 2023. The company has raised its dividends for 28 consecutive years and pays a $1.98 per share dividend annually, which translates to a 2.59% yield on the current price. Its four-year average dividend yield is 3.63%.
For the fiscal 2023 first quarter ended September 30, 2022, CAH’s revenues increased 12.8% year-over-year to $49.60 billion. Its revenue for the pharmaceutical segment rose 15.1% year-over-year to $45.83 billion, while profit for the same segment increased 6.2% from the year-ago value to $431 million.
Street expects CAH’s EPS and revenue for the current fiscal year (ending June 2023) to increase 4.8% and 10.9% year-over-year to $5.30 and $201.04 billion, respectively. Over the past year, the stock has gained 45.2% to close the last trading session at $76.52.
It’s no surprise that CAH has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It has a B grade for Growth and Value. Within the Medical – Services industry, it is ranked #4 of 78 stocks.
Beyond what we stated above, we also have CAH’s ratings for Momentum, Stability, Sentiment, and Quality. Get all CAH ratings here.
Molina Healthcare, Inc. (MOH)
MOH provides managed healthcare services to low-income families and individuals under Medicaid and Medicare programs and through state insurance marketplaces. The company operates through four segments: Medicaid; Medicare; Marketplace; and Other. It offers healthcare services through contracts with providers, independent physicians and physician groups, hospitals, and ancillary providers.
In October 2022, the company announced the closing of its acquisition of AgeWell New York’s Medicaid Managed Long Term Care Plan. As of September 30, 2022, AgeWell New York’s MLTC business served approximately 13,000 members. The acquisition should bolster the company’s operative capability.
On September 26, MOH’s health plan subsidiary, Molina Healthcare of Nebraska, was selected by the Nebraska Department of Health and Human Services (DHHS) to provide healthcare services to Nebraskans under the state’s Medicaid managed care program. This reflects the strong demand for the company’s services.
During the fiscal third quarter (ended September 30, 2022), MOH’s total revenue increased 12.6% year-over-year to $7.93 billion. Its operating income rose 51.6% from the year-ago value to $335 million. The company’s adjusted net income grew 54.9% from the same period the prior year to $254 million, while its adjusted EPS came in at $4.36, representing a 54.1% increase year-over-year.
Analysts expect MOH’s EPS and revenue for the fiscal fourth quarter (ended December 2022) to increase 39.7% and 6.2% year-over-year to $4.02 and $7.87 billion. The company surpassed the consensus EPS estimates in each of the trailing four quarters, which is excellent.
Shares of MOH have gained 5.9% over the past six months to close the last trading session at $302.76.
MOH’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our POWR Ratings system. MOH has a B grade for Growth, Value, and Quality. The stock is ranked #5 of 11 in the A-rated Medical – Health Insurance industry.
Click here to view the other ratings of MOH (Momentum, Stability, and Sentiment).
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CVS shares were trading at $89.45 per share on Thursday afternoon, down $0.30 (-0.33%). Year-to-date, CVS has declined -4.01%, versus a 4.12% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More...
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