Why most healthcare stocks are falling with Trump's win, with some exceptions

MW Why most healthcare stocks are falling with Trump's win, with some exceptions

By Tomi Kilgore

Investors in Medicare Advantage plan providers are happy about a change, but those in hospital operators and vaccine makers are worried

The healthcare sector leaned lower in the wake of former President Donald Trump's election victory, as some investors cheered the potential change in Medicare reimbursement policies, while others jeered what a new administration might do about subsidies for health-insurance exchanges and vaccine programs.

Shares of Medicare Advantage plan providers are surging, as they took a beating earlier this year after the Centers for Medicare and Medicaid Services under the current administration issued government reimbursement rates that disappointed insurers and investors.

As J.P. Morgan has put it, a Trump administration will likely be "pushing for more favorable rates and less scrutiny" with its Medicare Advantage policies, which would be music to Humana investors' ears.

Meanwhile, stocks of hospital operators and vaccine makers are taking a hit amid concerns over patient growth and usage under a Trump administration.

KeyBanc analysts say there's now a risk that the enhanced subsidies provided to those getting health insurance through Affordable Care Act exchanges will be allowed to expire in 2025. Those enhanced subsidies helped drive a "near doubling of individuals covered by exchanges," which in turn provided a benefit to hospitals' payor mix and profitability.

For drugmakers, there's a worry that Trump would put, as promised, well-known anti-vaxer Robert F. Kennedy Jr. in charge of health initiatives.

Among some more prominent drugmakers, shares of Eli Lilly and Co. $(LLY)$ shed 4.3%, Pfizer Inc.'s stock $(PFE)$ was down 2.6% and Moderna Inc.'s stock slid 2.9%. Shares of Germany-based BioNTech SE (BNTX), which teamed with Pfizer to develop a COVID vaccine, sank 4.6%.

Meanwhile, the Health Care Select Sector SPDR ETF XLV was little changed in morning trading, even as 35 of its 62 equity components were losing ground. The ETF was underperforming the broad market by a wide margin, as the S&P 500 index SPX surged 1.9%.

Helping lead the gainers, Humana Inc.'s stock $(HUM)$ jumped 8.2% in morning trading toward its biggest gain in two years.

Prior to Wednesday's rally, Humana's stock had plunged 43.1% this year. That included a 13.4% tumble on April 2, after the CMS's 2025 Rate Announcement, and a two-day 22.2% plummet through Oct. 2, as the CMS was set to cut its star rating on a large Medicare Advantage plan. Lower ratings can reduce government rebates, and therefore cut into profits.

Among others in the MA business, UnitedHealth Group Inc.'s stock $(UNH)$ climbed 5.3%. Even with the gain, the stock continued to underperform the broader market by a wide margin this year, given the challenging regulatory environment.

The stock was up 13.4% year to date, while the S&P 500 has run up 23.6%.

Among other winners, CVS Health Corp.'s stock $(CVS)$ charged up 10.8%. The company reported third-quarter revenue that rose above expectations, boosted by a particular strength in its healthcare benefits business, which includes its Medicare product lines.

Meanwhile, among the sector's biggest decliners were hospital operators, with HCA Healthcare Inc.'s stock $(HCA)$ shedding 4.6%, Universal Health Services Inc. shares $(UHS)$ falling 3.7% and shares of Tenet Healthcare Corp. $(THC)$ dropping 3.8%.

The worry for investors is the sustainability of Medicaid supplemental payment programs and the future of enhanced medical insurance exchange $(HIX)$ subsidies, Mizuho said.

Those stocks had outperformed the broader market by wide margins this year, with Tenet's stock still more than doubling despite Wednesday's selloff.

As Mizuho explained, Tenet is less exposed to the concerns of its hospital peers under a Trump administration, because the company's United Surgical Partners International subsidiary generally serves an older population while HIX skews younger.

-Tomi Kilgore

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November 06, 2024 11:44 ET (16:44 GMT)

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