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by Tatiana Darie
US health-care stocks were poised for an ugly session Monday as hospitals and insurers sank in early trading after a judge’s ruling Friday that Obamacare is unconstitutional.
A judge sided with Texas late Friday in a lawsuit alleging that Congress’s decision in 2017 to kill a related tax penalty essentially voided the entire Affordable Care Act. While many analysts expect the ruling to be reversed by higher courts, the news adds to volatility in a sector that had barely recovered from political overhangs this year and yet remains the top performing sector in the S&P 500.
US hospitals and health insurers, which are most at risk from the latest ruling, are down before the market open. Tenet Healthcare is lower by 8%, Community Health Systems by nearly 7%, and HCA Healthcare by almost as much. Among providers, Centene is down 6.6%, Anthem by 3.2% and Humana, UnitedHealth and Cigna slipped between 2.0 and 2.5%.
“Texas just really messed with us,” Jefferies health-strategist Jared Holz said in a note. “The market skittishness could cause exaggerated moves in health-care stocks.”
Health-care investors already were licking their wounds from Johnson & Johnson’s $45 billion plunge on Friday related to a Reuters report about asbestos in baby powder.
Centene and Molina could bear the brunt of the selloff in managed care given their exposure to Medicaid and Obamacare markets, also known as the public exchanges. Both insurers have a total ACA exposure of more than 40% of EPS, followed by WellCare Health at 10%, JPMorgan analyst Gary Taylor reminded investors in an email late Friday.
Unpaid Bills
Across publicly traded hospitals, earnings exposure to the health-care law is as much as 10%, Leerink Partners analyst Ana Gupte wrote in a note. She cautioned that facilities could see a drop in patient volumes and a rise in unpaid bills if people lose their health insurance.
A potential selloff threatens to diminish or erase payers’ and providers’ gains this year, with S&P 500 Managed Care Index up 17% and the Bloomberg Intelligence Hospitals Index up 5.9%.
Holz said other subsectors, including medtech, pharma and biotech, could also feel the aftershock. “This could all be an excellent buying opportunity depending on magnitude of moves and the next steps around another court entering a stay,” he wrote.
Copyright Bloomberg News
