Big managed care companies likely to see earnings slide YOY in Q2

Industry analysts are projecting lower second-quarter earnings from a majority of the largest publicly traded U.S. managed care insurers even as healthcare utilization trends return to normalized levels.

The COVID-19 pandemic is expected to continue to impact health insurance companies' earnings, according to Cantor Fitzgerald analyst Steven Halper. However, the analyst said in a note to clients that he continues to be "constructive" on large-cap managed care stocks.

A report from the Kaiser Family Foundation showed that there was a 1.3% aggregate decline in health insurance enrollment among 32 states out of 40 states, including the District of Columbia, for the period of March 2019 to March 2020. However, that negative trend reversed and started to accelerate in the other direction as the COVID-19 pandemic took hold; states reported an 18.8% aggregate increase in enrollment growth in March 2021.

Of the top eight managed care companies by total assets, Cigna Corp. is the only insurer expected to post a year-over-year EPS increase, according to an S&P Global Market Intelligence examination of sell-side analyst forecasts. Analysts also expect Cigna to report higher revenues year over year, with mean estimated revenues of $41.18 billion for the period.

Anthem Inc. and Centene Corp. are also expected to post year-over-year revenue increases, with mean estimated revenues of $33.20 billion and $30.10 billion, respectively.

Cigna and Anthem are both poised to benefit from the expected improvement in commercial trends in 2021 as employment levels recover, Halper said.

UnitedHealth Group Inc. CFO John Rex during a first-quarter earnings conference call said 70% of the health insurer's projected COVID-19 impact would occur in the second half of the year. The company at the time maintained about $1.80 per share of potential net unfavorable impact to accommodate continuing pandemic effects as part of its full-year earnings outlook for 2021.

UnitedHealth, which is far and away the largest managed care insurer in the U.S., is projected to see both earnings and revenues slide year over year in the second quarter. The "bellwether" of the managed care group will continue to benefit from its diversity and its various Optum businesses, according to Halper.

Credit Suisse analyst A.J. Rice expects managed care organizations to continue taking a cautious approach in the second half of the year due to the uncertainty of pent-up demand materializing as the year progresses. UnitedHealth provides a "safe haven" as the largest and most diversified managed care organization amid the uncertainty, according to the analyst.