Cigna Ends Humana Merger Speculation: CI Jumps 7.3% While HUM Slips

If you're interested in broad exposure to the Mid Cap Value segment of the US equity market, look no further than the Vanguard S&P Mid-Cap 400 Value ETF (IVOV), a passively managed exchange traded fund launched on 09/09/2010.

The fund is sponsored by Vanguard. It has amassed assets over $993.97 million, making it one of the average sized ETFs attempting to match the Mid Cap Value segment of the US equity market.

Why Mid Cap Value

Compared to large and small cap companies, mid cap businesses tend to have higher growth prospects and are less volatile, respectively, with market capitalization between $2 billion and $10 billion. These types of companies, then, have a good balance of stability and growth potential.

Value stocks are known for their lower than average price-to-earnings and price-to-book ratios, but investors should also note their lower than average sales and earnings growth rates. When you look at long-term performance, value stocks have outperformed growth stocks in nearly all markets. But in strong bull markets, growth stocks are more likely to be winners.

Costs

Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.

Annual operating expenses for this ETF are 0.15%, making it one of the least expensive products in the space.

It has a 12-month trailing dividend yield of 1.29%.

Sector Exposure and Top Holdings

It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation to the Financials sector--about 25.90% of the portfolio. Industrials and Consumer Discretionary round out the top three.

Looking at individual holdings, Illumina Inc (ILMN) accounts for about 1.52% of total assets, followed by Tenet Healthcare Corp (THC) and Fidelity National Financial Inc (FNF).

The top 10 holdings account for about 8.51% of total assets under management.

Performance and Risk

IVOV seeks to match the performance of the S&P MidCap 400 Value Index before fees and expenses. The S&P MidCap 400 Value Index measures the performance of value stocks of medium-size U.S. companies.

The ETF has added roughly 17.90% so far this year and was up about 37.35% in the last one year (as of 11/12/2024). In the past 52-week period, it has traded between $75.55 and $102.79.

The ETF has a beta of 1.15 and standard deviation of 19.90% for the trailing three-year period, making it a medium risk choice in the space. With about 297 holdings, it effectively diversifies company-specific risk.

Alternatives

Vanguard S&P Mid-Cap 400 Value ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, IVOV is a reasonable option for those seeking exposure to the Style Box - Mid Cap Value area of the market. Investors might also want to consider some other ETF options in the space.

The iShares Russell Mid-Cap Value ETF (IWS) and the Vanguard Mid-Cap Value ETF (VOE) track a similar index. While iShares Russell Mid-Cap Value ETF has $14.11 billion in assets, Vanguard Mid-Cap Value ETF has $18.57 billion. IWS has an expense ratio of 0.23% and VOE charges 0.07%.

Bottom-Line

Passively managed ETFs are becoming increasingly popular with institutional as well as retail investors due to their low cost, transparency, flexibility and tax efficiency. They are excellent vehicles for long term investors.

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

Zacks Investment Research

For Immediate Release

Chicago, IL – November 12, 2024 – Today, Zacks Equity Research like HCA Healthcare, Inc. HCA, Tenet Healthcare Corp. THC, Universal Health Services, Inc. UHS, Acadia Healthcare Company, Inc. ACHC and Community Health Systems, Inc. CYH.

Industry: Hospital

Link: https://www.zacks.com/commentary/2368306/5-hospital-stocks-set-to-thrive-amid-robust-industry-trends

The Zacks Medical-Hospital industry is benefiting from several positive trends, including growing admissions, resumption of elective procedures, technological advancements, a favorable payer mix and service line expansions. Although increasing salaries, benefits, and moderate staffing challenges may create some hurdles, these are expected to be largely offset by higher revenue per admission.

Mergers and acquisitions (M&A) are likely to drive growth in the hospital sector as companies focus on expanding capacity to gain market share in this fragmented industry. Key players such as HCA Healthcare, Inc., Tenet Healthcare Corp., Universal Health Services, Inc., Acadia Healthcare Company, Inc. and Community Health Systems, Inc. are well-positioned to take advantage of these trends.

Industry Overview

The Zacks Medical-Hospital industry comprises for-profit hospital companies that provide healthcare through different types of hospitals, such as acute care, rehabilitation and psychiatric. These hospital entities are engaged in internal medicine, general surgery, cardiology, oncology, neurosurgery, orthopedics and obstetrics, telehealth services, mental health care and diagnostic and emergency services. Revenues of these companies depend on inpatient occupancy levels, medical and ancillary services ordered by physicians and provided to patients, and the volume of outpatient procedures. These hospital companies receive payments for patient services from the government under the Medicare program, Medicaid or similar programs, managed care plans (including plans offered through the American Health Benefit Exchanges), private insurers and directly from patients.

4 Key Trends Shaping the Industry

Rising Patient Volumes: The resumption of elective procedures post-pandemic is boosting patient volumes and admissions. According to the U.S. Census Bureau's revised report, the 65+ age group will grow from 17.3% of the population in 2022 to 22.8% by 2050. This is expected to fuel demand for hospital services. Although medical inflation and rising costs remain concerns, safety nets like the Affordable Care Act could help maintain patient volume growth. Outpatient care, in particular, is expected to become one of the fastest-growing segments in the near future.

Addressing Cost Pressures: Increasing patient volumes and utilization, along with rising costs for supplies, labor, and benefits, are pushing hospital operating expenses higher. Staffing remains a challenge, though some progress has been made. To manage these pressures, hospitals are improving labor productivity, adopting cost-optimizing technologies, and enhancing efficiency. Higher revenue per admission will help sustain margins, while renegotiated supplier contracts are expected to strengthen cost control and operational efficiency.

Embracing Digital Transformation: The February 2024 ransomware attack on UnitedHealth Group's Change Healthcare unit highlights the critical importance of robust technological and cybersecurity measures in healthcare. To enhance patient care, streamline workflows, and manage costs, hospitals are increasingly adopting AI, automation, and real-time analytics. These technologies will not only improve operational efficiency and patient outcomes but will also help healthcare providers maintain a competitive edge. The growth of telehealth and telemedicine, fast-tracked by the pandemic, continues to reshape and solidify its place in modern healthcare delivery.

Resurgence in M&A Activity: After a pandemic-driven slowdown, M&A in the hospital and healthcare sector has made a comeback. The industry, characterized by fragmentation, is set for a wave of M&A deals and partnerships in the coming quarters aimed at expanding capacity. Business consolidation, tech partnerships, and new business models are expected to significantly enhance profitability for hospital operators.

Zacks Industry Rank Indicates Bullish Trends

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all member stocks, signals bright near-term prospects. The Zacks Medical-Hospital industry, which is housed within the broader Zacks Medical sector, currently carries a Zacks Industry Rank #28, which places it in the top 11% of nearly 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.

The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential. In fact, the industry’s earnings estimates for 2024 and 2025 have jumped 17.5% and 17%, respectively, in the past year.

Before we present the stocks that you may want to watch, let’s take a look at the industry’s recent stock market performance and valuation picture.

Industry Outperforms Sector and S&P 500

The Zacks Medical-Hospital industry has fared better than its broader sector and the Zacks S&P 500 composite over the past year. During this period, the stocks in this industry have gained 53.5% compared with the Zacks Medical sector’s 12.2% growth. The S&P 500 index has increased 36% during this time.

Industry's Current Valuation

On the basis of the trailing 12-month EV/EBITDA (Enterprise Value/ Earnings Before Interest Tax Depreciation and Amortization) ratio, which is commonly used for valuing hospital stocks, the industry trades at 8.23X compared with the S&P 500’s 18.56X and the sector’s 13.16X.

Over the past five years, the industry has traded as high as 9.55X and as low as 5.57X, with a median of 7.99X.

5 Stocks Worth Your Attention

Tenet Healthcare Corporation: The company offers a wide range of healthcare services through general hospitals and related healthcare units. It is experiencing substantial revenue growth, driven by increasing patient volumes in both its Ambulatory Care and Hospital segments. The Ambulatory Care unit, bolstered by the robust performance of its USPI division, is a key contributor to this success. Strategic tuck-in acquisitions in this unit are further strengthening the company's overall performance.

The Zacks Consensus Estimate for THC’s 2024 bottom line is pegged at $11.39 per share, which indicates 63.2% year-over-year growth. Tenet Healthcare beat earnings estimates in all the past four quarters, the average surprise being 59.9%. The consensus mark for 2024 revenues is pegged at $20.8 billion, signaling a 1% increase from a year ago. Shares of the company have gained 31% over the past six months. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

HCA Healthcare: The company runs general and acute care hospitals and related facilities. It is set for growth with increasing patient volumes and admissions. Its expansion into telemedicine is expected to enhance revenues and diversify its portfolio. Growing number of inpatient and same-facility emergency room visits are aiding its performance. HCA is scaling its business through strategic acquisitions and is committed to boosting shareholder value with dividend increases and share buybacks.

The Zacks Consensus Estimate for one of the biggest for-profit publicly traded hospitals’ 2024 EPS indicates 15.8% year-over-year growth. HCA Healthcare beat earnings estimates in each of the past four quarters, the average surprise being 9%. The consensus mark for 2024 revenues signals an 8.5% increase from a year ago. Shares of the company have jumped 11.7% over the past six months. It currently has a Zacks Rank #3 (Hold).

Universal Health Services: It operates acute care facilities, outpatient centers and behavioral health care units. It specializes in areas like autism, eating disorders, substance use disorders and military-related issues through its Patriot Support Program. It is seeing growth driven by an increase in patient days and a broadening care network. The expansion of licensed beds in acute care hospitals and strategic joint ventures in behavioral health are likely to further propel the company's growth.

The Zacks Consensus Estimate for Universal Health’s 2024 bottom line indicates 51.1% year-over-year growth. UHS beat earnings estimates in three of the past four quarters and missed once, the average surprise being 12.1%. The consensus mark for its 2024 revenues signals a 9.8% increase from a year ago. Shares of the company have gained 16.2% in the past six months. It has a Zacks Rank #3 at present.

Acadia Healthcare: It delivers behavioral healthcare services across the United States and Puerto Rico. ACHC's performance is driven by rising patient volumes, increasing admissions and the expansion of service lines into new states. In 2024, Acadia plans to add over 400 beds to existing facilities and open up to 14 new CTCs. The company's dedication to enhancing its capabilities is further demonstrated by its active pursuit of joint ventures with established healthcare systems.

The Zacks Consensus Estimate for ACHC’s 2024 bottom line is pegged at $3.43 per share. The consensus mark for 2024 revenues signals a 7.9% increase from a year ago. It beat on earnings in each of the last four quarters, the average surprise being 3.9%. It has a Zacks Rank #3 at present. Shares of the company have declined 43% in the past six months as investors might be worried about its reduced revenue and EBITDA outlook for 2024. Due to the sale of two subscale satellite programs, its figures might decline in the short term.

Community Health Systems: It operates a network of general acute care hospitals and outpatient facilities across the United States. The company's robust performance is fueled by higher occupancy rates. With a strategic focus on telehealth, CYH is poised for long-term growth. It is pursuing acquisitions in hospitals to enhance specialty medical services and achieve economies of scale. Additionally, it is actively divesting non-core assets to boost profitability, improve same-store metrics and strengthen cash flow. The divestments might affect its nominal figures in the short term.

The Zacks Consensus Estimate for CYH’s 2024 bottom line indicates a 65.5% improvement from a year ago. The consensus mark for its 2024 revenues is pegged at $12.5 billion, signaling a 0.3% increase from a year ago. Shares of the company have gained 30.9% in the past six months. It has a Zacks Rank #3 at present.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Zacks Investment Research

The Dow Jones Industrial Average closed above 44,000 for the first time Monday, while the S&P 500 topped 6,000 for its own closing milestone as markets awaited key inflation data and corporate earnings due later this week.

The Dow advanced 0.7% to 44,293.1, while the S&P 500 rose 0.1% to 6,001.4 and the Nasdaq Composite climbed 0.1% to 19,298.8. The trio of indexes extended rallies to records following Donald Trump's victory in the 2024 US presidential election last week.

Among sectors, consumer discretionary led the gainers, while technology posted the biggest drop.

Official data are expected to show Wednesday that US consumer inflation in October rose 0.2% sequentially and 2.4% annually, according to a Bloomberg-compiled consensus.

Core inflation, which excludes volatile food and energy components, is seen accelerating 0.3%, Morgan Stanley said. "However, we think the strength is in large part just short-run noise (amid a) temporary acceleration in cars due to the recent hurricanes and short-lived payback in shelter after the weak print in September," the report said.

Official producer prices data for last month are scheduled to be released Thursday.

Home Depot , Cisco , Walt Disney and AstraZeneca are among the companies scheduled to quarterly financial results later in the week.

In company news Monday, Tesla shares jumped 9%, the biggest gain on the Nasdaq and among the largest on the S&P. The electric vehicle maker's artificial intelligence opportunity will likely get fast-tracked under the Trump administration, Wedbush Securities said.

Cigna Group shares increased 7.3%, among the top S&P 500 gainers, after the health insurer said it is not pursuing a combination with Humana and is on track to meet its full-year earnings target. Humana shares fell 2%.

Salesforce shares rose 6.2%, the biggest gain on the Dow, as Jefferies adjusted its price target on the stock to $400 from $350 while maintaining its buy rating.

AbbVie said its two phase 2 trials assessing emraclidine in adult patients with schizophrenia and acute exacerbation of psychotic symptoms didn't meet their primary goals. The company's shares slumped 13%, the second-steepest decline on the S&P.

Celanese shares fell 7.3%, among the biggest declines on the S&P, after rating downgrades at UBS and BMO Capital.

West Texas Intermediate crude oil fell 3.1% to $68.22 a barrel Monday. Prices dropped as the threat of a supply disruption from storm Rafael in the US Gulf of Mexico eased, while China's recent stimulus plan disappointed investors, Reuters reported.

US bond markets were closed Monday for Veterans Day.

Gold dropped 2.4% to $2,629.80 per troy ounce, while silver lost 2.1% to $30.8 an ounce.

The S&P 500 Index Monday closed up +0.10%, the Dow Jones Industrials Index closed up +0.69%, and the Nasdaq 100 Index closed down -0.05%.

Stocks on Monday settled mixed, with the S&P 500 and the Dow Jones Industrials posting new all-time highs. The broader market extended last week’s post-election gains on speculation President-elect Trump will boost corporate profits through tax cuts and reduced regulation. Also, Tesla rallied more than +8%, adding to last week’s +26% surge on speculation that the company would benefit from a Trump presidency. In addition, cryptocurrency-related stocks soared Monday on speculation digital assets will benefit from the Trump administration’s pro-crypto policies. Trading activity in equities was below average on Monday, with the cash treasury market closed for the Veterans' Day holiday.

On the negative side, chipmakers retreated Monday to drag the Nasdaq 100 Stock Index lower. Also, Minneapolis Fed President Kashkari said a strong US economy and higher productivity growth could lead policymakers to reduce interest rates less than expected over the coming months.

The price of Bitcoin Monday closed down by -12 ticks. The 10-year T-note yield did not trade Monday with the cash Treasury market closed for the Veteran’s Day holiday. Hawkish comments from Minneapolis Fed President Kashkari weighed on T-notes when he said a strong US economy and higher productivity growth could lead policymakers to reduce interest rates less than expected over the coming months. Also, Monday’s rally in the S&P 500 to a new record high reduces safe-haven demand for T-notes and is undercutting T-note prices.

European government bond yields on Monday moved lower. The 10-year German bund yield fell to a 1-1/2 week low of 2.311% and finished down -4.1 bp to 2.327%. The 10-year UK gilt yield dropped to a 1-week low of 4.407% and finished down -1.0 bp to 4.425%.

ECB Governing Council member Holzmann said he sees "no reason" for the ECB not to cut interest rates at its December policy meeting, but a cut is not guaranteed.

ECB Governing Council member Stournaras said, "Now that inflation is coming down, we've started to lower interest rates, which looks like we're going to continue lower and could end up close to 2% around next September."

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its December 12 policy meeting and at 18% for a -50 bp rate cut at the same meeting.

US Stock Movers

Bristol Myers Squibb closed up more than +10% to lead gainers in the S&P 500 after rival AbbVie sank when it said its two mid-stage trials of its investigative treatment for adults with schizophrenia missed their primary endpoints, which may boost demand for BMY’s Cobenfy drug for the mental disorder.

Tesla closed up more than +8% at a 2-1/2 year high to lead gainers in the Nasdaq 100. Tesla is adding to last week’s +26% surge on expectations that the incoming Trump administration will support the company. Also, Wedbush raised its price target on the stock to $400 from $300 and said, “A Trump White House will be a game-changer for the autonomous and AI story for Tesla and Musk over the coming years.”

Cryptocurrency-linked stocks rallied sharply Monday, with the price of Bitcoin surging more than +14% to a new record high. As a result, Coinbase Global , Bit Digital , MicroStrategy , MARA Holdings , and Riot Platforms closed up more than +17%.

Cigna Group closed up more than +7% after confirming it is not pursuing a combination with Humana and is expecting to reaffirm projected 2024 adjusted income from operations of at least $28.40 a share and adjusted EPS growth of at least 10% in 2025.

Salesforce closed up more than +6% to lead gainers in the Dow Jones Industrials after CEO Benioff said the company will hire 1,000 workers to capitalize on the “amazing momentum” for the company’s AI product.

RadNet closed up more than +20% after reporting Q3 revenue of $461.1 million, better than the consensus of $441.5 million, and announced a collaboration with GE HealthCare on the adoption of AI imaging.

Winnebago Industries closed up more than +6% after Northcoast Research upgraded the stock to buy from neutral with a price target of $75.

Fortinet closed up more than +5% after HSBC upgraded the stock to buy from hold with a price target of $111.

Chip stocks retreated Monday to weigh on the Nasdaq 100. Intel and Microchip Technology closed down more than -4%. Also, KLA Corp , ARM Holdings Plc , and NXP Semiconductors NV closed down more than -3%. In addition, Lam Research , Micron Technology , GlobalFoundries , Analog Devices , and Broadcom closed down more than -2%.

Monolithic Power Systems closed down more than -14% to lead losers in the S&P 500 after Edgewater said the company’s Blackwell allocation is at risk.

Abbvie closed down more than -12% after saying its two mid-stage trials of its investigative treatment for adults with schizophrenia missed their primary endpoints.

Celanese closed down more than -7% after BMO Capital Markets downgraded the stock to underperform from market perform with a price target of $76.

Newmont Corp closed down more than -6% to lead miners lower after the price of gold dropped more than -2% Monday to a 1-month low.

Monday.com closed down more than -15% after reporting an unexpected Q3 EPS loss of -24 cents versus expectations of a +1-cent gain.

Sapiens International NV closed down more than -26% after reporting Q3 adjusted revenue of $137.0 million, weaker than the consensus of $140.2 million.

Revvity closed down more than -1% after Nephron Research downgraded the stock to sell from hold with a price target of $105.

Earnings Reports (11/12/2024)

Amdocs Ltd (DOX), Archer-Daniels-Midland Co (ADM), Azenta Inc (AZTA), Cava Group Inc (CAVA), GRAIL Inc (GRAL), Home Depot Inc/The (HD), Light & Wonder Inc (LNW), Maplebear Inc (CART), Mosaic Co/The (MOS), Natera Inc (NTRA), Occidental Petroleum Corp (OXY), Repligen Corp (RGEN), Rocket Cos Inc (RKT), Roivant Sciences Ltd (ROIV), Shift4 Payments Inc (FOUR), Skyworks Solutions Inc (SWKS), Spotify Technology SA (SPOT), Tyson Foods Inc (TSN), ZoomInfo Technologies Inc (ZI).

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policyhere.