UnitedHealth Group Incorporated. (UNH) and Clover Health Investments, Corp. (CLOV) are two U.S.-based diversified healthcare companies. While UNH provides consumer-oriented health benefit plans for national employers and individuals, CLOV offers preferred provider organization and health maintenance organization health plans for Medicare-eligible consumers.
A substantial increase in enrollments for government sponsored health insurance plans, coupled with the growing demand for Medicare Advantage and Medicaid supplemental plans, has created immense opportunities for the health insurance industry. Earlier this year, President Joe Biden signed a series of healthcare-related directives to restore the Affordable Care Act and Medicaid. This should lead to a higher demand for affordable and easily accessible health insurance plans from UNH and CLOV.
Over the past month, UNH has returned 6.9%, while CLOV gained 0.2%. But over the past three months, UNH is the clear winner with 3.6% gains versus CLOV’s negative returns. But which of these stocks is a better pick now? Let’s find out.
This month, UNH was selected by the state of Hawaii to work with QUEST Integration to administer Hawaii’s Medicaid program and improve the overall health and well-being of Medicaid beneficiaries in the state. The company plans to offer value-based, sustainable, person-centered solutions to meet the healthcare needs of Hawaii residents.
Last month, the company introduced the Right2You virtual care model for UNH members and others . This affordable and convenient hearing healthcare plan allows members to customize remotely with a smartphone or tablet, which can be paired to hearing aids.
On April 6, Kaskela Law LLC, Bronstein, Gewirtz & Grossman LLC, and The Law Offices of Vincent Wong filed a class action lawsuit against CLOV, on behalf of the company’s shareholders.
In March, the research team of CLOV, Massachusetts General Hospital, Harvard Medical School and ACP Decisions received a five-year grant from the National Institutes of Health to conduct a clinical study for improving advance care planning among patients with serious chronic illness that receive home-based primary care. This should enable CLOV to meaningfully improve the lives of its Medicare beneficiaries.
Recent Financial Results
During the fourth quarter, ended December 31, 2020, UNH’s total revenue under UnitedHealth Group segment increased 7.6% year-over-year to $65.5 billion. Also, the company’s Optum segment revenue increased 20.5% from the prior-year quarter to $35.9 billion, while its earnings from operations was $3.12 billion compared to $3.02 billion for the fourth quarter of 2019.
CLOV’s total revenue increased 44.1% year-over-year to $166.2 million in the fourth quarter, ended December 31, 2020. But the company’s operating loss came in at $67.63 million for this period. It reported a net loss of $81.58 million, compared to $78.67 million in the prior-year quarter. Furthermore, CLOV’s adjusted EBITDA loss was $63.36 million, compared to $59.11 million in the same period last year.
Expected Financial Performance
UNH’s revenue is expected to rise 8.6% in the current year. Also, a consensus EPS estimate indicates a 7.7% increase in the current quarter and increases at the rate of 12.4% per annum over the next five years.
In comparison, the Street expects CLOV’s revenue to decrease 22.2% in fiscal 2021. The company’s EPS is estimated to increase 68.2% in the current year. Also, its EPS is expected to grow at the rate of 78.1% over the next five years.
UNH’s trailing-12-month revenue is significantly higher than CLOV’s. Also, UNH is more profitable, with a gross profit margin of 26.1% versus CLOV’s 14.4%.
In fact, UNH’s EBIT margin of 8.7% compares favorably with CLOV’s negative return.
In terms of forward EV/Sales, CLOV is currently trading at 4.64x, 231.4% higher than UNH, which is currently trading at 1.40x. But UNH’s trailing-12-month Price/Sales of 1.39x is 172.5% higher than CLOV’s 0.51x.
UNH has an overall B rating, which equates to a Buy in our proprietary POWR Ratings system. However, CLOV has an overall F rating, which translates to Strong Sell. The POWR Ratings assesses stocks by 118 different factors, each with its own weighting.
In terms of Value Grade, UNH has a B, which is consistent with its lower-than-industry P/E ratio. CLOV’s Value Grade of C is in sync with the company’s higher-than-industry Price-to-Book ratio.
UNH has a Quality Grade of B, given its higher-than-industry EBIT margin. But CLOV’s Quality Grade of D is reflective of its lower-than-industry gross profit margin.
In terms of Sentiment Grade, UNH has a B. This justifies analysts’ expectations about its increase in earnings and revenue. In comparison, CLOV has a Sentiment Grade of F.
Of the 11 stocks in the B-rated Medical - Health Insurance industry, UNH is ranked #2, while CLOV is ranked #11.
In addition to the grades we’ve highlighted, our POWR Ratings system has also rated both UNH and CLOV for Growth, Stability, and Momentum. Get all UNH ratings here. Also, click here to see the additional POWR Ratings for CLOV.
During these times of unprecedented challenges posed by the coronavirus pandemic, healthcare insurers UNH and CLOV have prospered due to deflated demand for Medicare programs and other healthcare services. While both companies can be considered good long-term investments due to the rising need for healthcare, UNH appears to be a better buy based on the factors discussed here. Its superior financials and expanded platform make it a better pick now.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Medical - Health Insurance industry.
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UNH shares were trading at $376.48 per share on Tuesday morning, up $0.20 (+0.05%). Year-to-date, UNH has gained 7.74%, versus a 10.58% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.UnitedHealth Group vs. Clover: Which Health Insurance Stock is a Better Buy? appeared first on StockNews.com