Mizuho recommended buying three health insurer stocks as it initiated coverage of the sector Thursday.
Mizuho's Ann Hynes initiated coverage of Humana Inc. HUM with a Buy rating and $316 price target.
Hynes started Cigna Corp. CI with a Buy and $180 price target.
Hynes initiated UnitedHealth Group Inc. UNH with a Buy and $270 price target.
Hynes initiated Anthem Inc. ANTM with a Neutral and $262 price target.
Medicare Advantage, in which private insurers contract with Medicare to cover care, is the "crown jewel" at the center of Humana's business, Hynes said in the initiation note. (See her track record here.)
Humana has a 17% share of the Medicare Advantage market, and the plans make up about a quarter of the insurer's medical membership, the analyst said — three times the industry average.
That's good for Humana, because Medicare is estimated to be the fastest-growing segment of insurance spending over the next decade, she said.
"We think HUM is nicely leveraged to the underlying industry growth fundamentals."
The key to Cigna's success is in the merger it closed last year with Express Scripts, the nation's largest pharmacy benefit manager, Hynes said.
The two companies combined create revenue synergies supporting a 2021 EPS outlook of $21 to $22 and long-term annual EPS growth of more than 10%, the analyst said.
"Coupled with the reduced legislative risk associated with a change in the rebate model, this should set the stock up nicely to close the valuation gap versus peers."
Leading national market share in commercial and government silos; a diverse revenue stream; strength in the company's Optum business; its sound capital deployment strategy; and expectations for underlying market growth make the stock a good buy, Hynes said.
Business diversification into pharmacy, data and technology and other areas differentiates UnitedHealth, the analyst said.
The lone Neutral rating of the group stems from expected headwinds in managed Medicaid, where Anthem is exposed, Hynes said.
While states have increasingly turned to private companies to manage their Medicaid programs, rules for eligibility are subject to the whims of lawmakers and regulators.
That uncertainty over eligibility is what's keeping Mizuho on the sidelines, she said.
Shares of Humana were up 0.57% at the time of publication Friday, trading at $287.14. Cigna was up 0.82% to $166.17; UnitedHealth was trading down 0.11% at $243.39; and Anthem was down 0.67% at $247.58.
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