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About this time every year, people begin to predict what might happen in the following year. Several of the major managed care organizations, or MCOs, have joined in over the last few weeks.
Aetna (NYSE: AET ) , Cigna (NYSE: CI ) , and UnitedHealth Group (NYSE: UNH ) recently hosted investor conferences where they highlighted the opportunities and challenges for the coming year. WellPoint (NYSE: WLP ) also shared its views at the Oppenheimer Healthcare Conference. Here are the areas these companies see as the most likely winners and losers for 2013.
While more government spending doesn't help taxpayers pocketbooks, it probably will add to the pocketbooks for MCOs. Aetna sees Medicaid as a growth area for the company, with Obamacare as a key driver for Medicaid expansion. With its pending acquisition of Coventry Health Care (NYSE: CVH ) , Medicaid will be an even bigger factor for the company.
UnitedHealth also sees opportunities for growth as health-care reform increases Medicaid rolls. The insurer projects 6% to 8% growth in Medicaid enrollment. The market for individuals who are eligible for both Medicare and Medicaid is viewed as a special focus area for earnings growth.
WellPoint is another MCO that stands to benefit from Medicaid expansion. With its acquisition of Amerigroup (NYSE: AGP ) , the company will claim Medicaid programs in 19 states.
All of these major managed care companies have jumped on board the Accountable Care Organization bandwagon. ACOs involve close coordination between providers and payers to share risk and reduce costs. Expect the ACO model to gain traction next year and beyond.
Cigna points to its preliminary ACO results of lowering annual medical costs per patient by 4%. Aetna expects membership in its Accountable Care Solutions business to triple in 2013. Meanwhile, UnitedHealth cites its customizable accountable care programs, which range from shared savings to full capitation, as a means of appealing to providers.
The consensus loser for 2013 will be earnings growth. UnitedHealth CEO Stephen Hemsley warned in November that earnings could be pressured due to "the weak business climate and employment outlook" in the U.S. The company's earnings guidance for next year fell below analyst estimates.
Ditto that for Aetna and Cigna. Aetna's CFO cautioned in November that the economy could slow earnings growth. Like UnitedHealth, Aetna released 2013 earnings guidance lower than what analysts projected. Cigna pointed to a "challenging" economic environment with its earnings forecast that came in lower than analysts' estimates.
WellPoint also projected 2013 earnings lower than what analysts expected. However, the company thinks that earnings will be "relatively stable" compared to 2012.
Some analysts think that the big MCOs are just being overly cautious in providing lower-than-expected forecasts. If they're right, the stocks for these companies could benefit from beating expectations next year.
WellPoint looks to be the most attractive from a valuation perspective. The company's forward P/E of 7.5 is well below the others. It also boasts a dividend yield of 2%, which is higher than the rest of the pack.
Since it's the time of year for predictions, my prediction is that WellPoint could be a relative winner in 2013. We'll just have to wait a year to see if I'm right.
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