U.S. managed care companies are broadly expected to see year-over-year growth in EPS and revenues in the fourth quarter of 2018, according to an S&P Global Market Intelligence review of analyst projections.
The outliers are Triple-S Management Corp., which is projected to post lower EPS than the year-ago period, and Molina Healthcare Inc., which is expected to see revenues dip year over year.
On a sequential basis, EPS are expected to fall across the board, while the revenue picture is mixed.
Years after the Supreme Court mostly upheld the Affordable Care Act, another legal challenge made national headlines in December 2018 when a federal judge ruled the entire law unconstitutional due to congressional action that essentially repealed the individual mandate. Kim Monk, a partner with Capital Alpha Partners, said she had previously warned that the courts might make a strike at the Affordable Care Act but was still a "little surprised" when it was completely invalidated.
"I would be surprised if the earnings reflected anything at this state because I think there's still a long way to go before resolution," Monk said. "There's general consensus that the lower court decision was probably an overreach and will at least be modified, if not overturned outright."
Monk added that she thought questions about the impact of the ACA would definitely be asked on upcoming calls but said it was "way too premature" for companies to start making forecasts about losing ACA-related business. The law remains in effect while it winds through the appeals process.
A note written by BMO Capital Markets' Matt Borsch listed the prospect that Congress will take action to continue the suspension of the ACA insurer fee for 2020 as "50/50 at best." The suspension is a "direct benefit" to earnings in Medicare Advantage and has helped reduce the likelihood for the "kind of 'sticker shock' that might drive insured purchasers to switch to self-insuring," Borsch said.
Borsch in that note maintained ratings of "outperform" on Centene Corp., UnitedHealth Group Inc., Anthem Inc., Humana Inc. and WellCare Health Plans Inc.
"We expect a strong earnings year boosted by specific tailwinds," Borsch wrote. "That may be consensus, but we nonetheless see the ingredients for stock out-performance from the combination of earnings upside and reasonable valuations."