4 HMO Stocks to Watch Despite Continued Industry Headwinds

Industry Overview - The U.S. health insurance industry, known as Health Maintenance Organization (HMO), is poised for growth due to rising premiums and increasing membership, particularly with the aging population driving demand for Medicare [1] - The HMO sector includes entities that provide basic and supplemental health services, assuming risks and assigning premiums to health insurance policies [2] Key Trends - High technology costs are a significant concern as HMOs invest in telehealth services to meet the growing demand for digital healthcare, which may pressure profit margins [3] - A nationwide shortage of medical staff, particularly nurses, is impacting care quality and could affect membership retention for HMOs [4] - Growing premiums are a primary revenue driver, with enhancements to health plans aimed at attracting and retaining members, especially as Medicare demand rises with an aging population [5] - Active mergers and acquisitions (M&A) are being pursued to expand capabilities and diversify, supported by potential interest rate cuts that may facilitate financing for these deals [6] Performance Metrics - The Zacks Medical-HMO industry has underperformed, with a 0.8% decline compared to the S&P 500's 34.4% growth over the past year [8] - The industry trades at a forward 12-month price-to-earnings (P/E) ratio of 15.69X, lower than the S&P 500's 22.09X and the sector's 22.75X [9] Company Highlights - UnitedHealth Group: Strong performance driven by its UnitedHealthcare and Optum divisions, with a 2024 earnings estimate of $27.65 per share, reflecting a 10.1% increase from 2023 [11] - Cigna: Growth supported by its Evernorth and Cigna Healthcare platforms, with a 2024 earnings estimate of $28.48 per share, indicating 13.5% growth from 2023 [12] - Humana: Growth fueled by higher premiums and an expanding customer base, with a 2024 earnings estimate of $16.12 per share [13] - Molina Healthcare: Focused on affordable Medicare and Medicaid plans, with a 2024 earnings estimate of $23.50 per share, representing a 12.6% increase from the previous year [14]