Top U.S. insurers fall off healthcare sector rally wagon
NEW YORK Oct 29 (Reuters) - Health stocks continue to head the market, but the latest leg of the rally has come without the help of a group that led the charge for most of the year: health insurers.
Technical glitches that have hampered enrollment under the Affordable Care Act, uncertainty over the tax implications associated with plan premiums and cuts in government funding for private Medicare plans have clouded the outlook for the five managed care providers in the Standard & Poor's 500 Index . They are UnitedHealth Group Inc, Cigna Corp , Aetna Inc, Humana Inc and WellPoint Inc .
In the latest problem to hit the troubled federal health insurance website, the data center critical for allowing uninsured Americans to buy health coverage under President Barack Obama's healthcare law went down on Sunday, temporarily halting online enrollment for all 50 states.
"The insurers are not able to provide predictions, their outlook and other things to solve the uncertainty because they themselves don't know what the business condition is going to look like," said Bill Barker, senior portfolio analyst at Motley Fool Asset Management in Alexandria, Virginia.
Another setback came Tuesday, when Aetna posted a quarterly profit that missed Wall Street estimates, and it declined to provide a specific forecast for 2014 earnings, driving its shares 1.7 percent lower . That added to a confusing picture of the health insurance landscape provided recently by rivals WellPoint and UnitedHealth.
"It's the largest change that our industry has gone through in history ... and we are only three weeks in," WellPoint Chief Financial Officer Wayne DeVeydt said in an interview.
"We think we have a responsibility to our shareholders to tell them what we know when we know it and if we don't know something, as frustrating as it is for them, and we understand that," DeVeydt said.
"We plan to tell them the (enrollment) data as we get it. It's challenging to provide more concrete guidance for next year until we see how the exchanges roll out."
Since the middle of September, the shares of the five big insurers have posted an average decline of more than 9 percent. Meanwhile, the S&P health sector index has risen 3.5 percent in the same period.
Those five had logged an average year-to-date gain of 47 percent, more than 18 percentage points ahead of the broader health sector, and more than twice the full S&P's gain up to that point, which then stood at 19 percent for the year.
Helping fuel the rally were expectations that the launch of the mandatory individual enrollment period under the Affordable Care Act, or Obamacare, would bolster their customer rolls.
But in a matter of days in mid-September, investors pulled back from the stocks as chatter grew about technical glitches with the federal government's online insurance marketplace, and word came that some big employers were shifting at least some of their workers and retirees to the exchanges.
The reversal was sudden and struck all five at virtually the same time. Over the two days from Sept. 18 and 19, the five dropped by an average of 5.5 percent each. Cigna's 7.2 percent drop was its largest two-day fall in nearly two years.
Volume was unusually heavy across the group, particularly in the last hour of trading on Sept. 19 when it surged to more than five-and-a-half times normal.
The group has not regained a solid footing since. In the ensuing six weeks, UnitedHealth, the largest U.S. health insurer by market value, was down 9.4 percent, Cigna 12 percent, Aetna 11.9 percent, Humana fell 8.1 percent and WellPoint 5.5 percent.
Many analysts still expect these stocks to benefit from Obamacare over the long term, despite uncertainty about how profitable business from the exchanges will be.
"(The) Obamacare website situation didn't help, (but) it's time to be patient with them. Let the Obamacare rollout play itself out," said Robert Francello, head of equity trading for Apex Capital in San Francisco.
According to a Thomson Reuters StarMine analysis, all five stocks now trade at substantial discounts to their intrinsic valuations, which compares long-term profit growth rates implied by a stock's current price with those forecast by the most accurate analysts covering them.
By this measure, the stocks have potential upside ranging from a low of 39 percent for UnitedHealth to as high as 72 percent for Aetna.
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