Goldman Sachs'Stephen Tanal and his team initiated coverage of managed care and providers Wednesday, and they see good things for managed care stocks ahead.
Tanal writes that the managed care industry is structurally advantaged and well positioned to help both public and private sector payors control healthcare costs, and as a value proposition that looks set to gain more ground ahead. He also sees cyclical tailwinds for the group, including value-based reimbursement, as well as the the “consumerization” of healthcare, as adding to the bull case for the sector.
Insurers will get another boost from new lower corporate taxes, Tanal writes, leading to "meaningful upside" for the stocks this year, with managed care companies outperforming. As such, he initiated coverage of UnitedHealth (UNH), Centene (CNC), Humana (HUM), and WellCare (WCG) at Buy, with Centene making it onto the firm's Conviction Buy list.
Tanal writes that healthcare providers have a more tempered outlook this year, as they face a number of structural and secular headwinds facing the group, even if they cyclical backdrop is positive. Moreover, he sees the new tax laws splitting the group: "Those generating positive pre-tax income with moderate balance sheet leverage will benefit (HCA Healthcare (HCA)/LifePoint Healthcare (LPNT)/Universal Health Services (USH)); their peers will not (Community Health (CYH)/Tenet Healthcare (THC))."
He initiated Universal Health Services at Buy and Community Health and LifePoint at Sell.