UnitedHealth, Cigna, and Other Managed Care Stocks Surge Amid Concerns of Overstated Sales
Investing.com -- UnitedHealth Group (NYSE: UNH), CVS Health (NYSE: CVS), and Cigna Corp. (NYSE: CI) stocks rose by 3%, 5.5%, and 5% respectively during today’s trading session. This upward movement occurred as investors reassessed the impact of new healthcare provisions included in the temporary budget proposal agreed upon by Congressional leaders. Mizuho analyst Ann Hynes emphasized that these provisions targeting pharmacy benefit managers (PBMs) are less stringent than feared and will not take effect until 2028, thus providing the industry ample time to adjust.
The legal provisions focus on eliminating spread pricing in Medicaid, mandating full pass-through of discounts, and adding reporting transparency requirements. While the language is thought to potentially affect PBM contracts in the commercial market, it is viewed as manageable. Notably, the legislation does not foresee the complete elimination of discounts.
Since December 8, when concerns over presidential candidate Trump’s focus on the PBM sector led to sell-offs, managed care companies’ stock prices have seen significant declines compared to broader market indices. However, stocks are currently trading at an average of 10.8 times the estimated 2025 adjusted earnings per share, down from 12.8 times before initial commentary regarding the sector.
The provisions aim to enhance transparency and accountability within the PBM industry through measures such as banning spread pricing in Medicaid and granting new oversight rights to Part D plan sponsors. These changes are expected to bring more administrative tasks rather than dramatically altering PBMs' existing business models.
Hynes stated, "We believe the sell-off in managed care companies since it became clear presidential candidate Trump would target the PBM sector on December 8 has been exaggerated." This perspective likely contributed to the rebound in stock prices as the market digested the potential long-term effects of the legislation.
The reevaluation of the initial market reaction to the regulatory news has provided momentum to the stocks of UnitedHealth, CVS Health, and Cigna Corp. Investors have realized that the impact of the provisions on the companies' futures may not be as detrimental as previously thought. These managed care organizations, having time to renegotiate and restructure contracts, appear to be on a more solid foundation than recent stock performance indicates.