Humana Inc. (HUM), in Louisville, Ky. and Franklin, Tenn.-based Clover Health Investments, Corp. (CLOV) are two prominent players in the health insurance industry. HUM offers commercial fully insured medical and specialty health insurance benefits, coordinated health care through health maintenance organizations (HMO), and administrative services products. Whereas CLOV, through its Clover Assistant software platform, provides Preferred Provider Organization (PPO) and HMO health plans to Medicare-eligible consumers.
Designed to lower health care costs and extend health coverage to millions of uninsured Americans, the Affordable Care Act has increased competition among insurers significantly on premium price and value. Since the COVID-19 pandemic, health insurers have been upgrading their policies with various premium options, favorable reimbursement rates, adding coverage of various diseases, and making long-term contracts with healthcare providers to capitalize on ACA’s rising enrollment. Consequently, the global health insurance market is expected to grow at 5.5% CAGR to hit $3.04 trillion by 2028. So, we believe both HUM and CLOV should benefit substantially in the coming months.
While CLOV gained 11.1% over the past month, HUM has returned 6.4%. And in terms of their past three month’s performance, CLOV is again the clear winner with 31.4% gains versus HUM’s 11.4% returns. But CLOV’s rally can be attributed in large measure to the meme stock craze. So, which of these stocks is a better pick now? Let’s find out.
Click here to checkout our Healthcare Sector Report for 2021
Latest Movements
On June 15, HUM was awarded a new, four-year contract with the West Virginia Public Employees Insurance Agency (PEIA). HUM will provide health insurance coverage to the state’s 54,000 Medicare-eligible retirees and their Medicare-eligible dependents, effective January 1, 2022.
On June 14, 2021, HUM signed an agreement to acquire One Homecare Solutions (onehome), an integrated home-based post-acute care provider, from WayPoint Capital Partners. The acquisition will further advance HUM’s strategy of building a new value-based home health model that will improve patient outcomes, increase satisfaction for patients and providers, and provide greater value for health plan partners. Upward Health, a leading in-home medical and behavioral primary care provider, announced a new Preferred Provider relationship with CLOV on June 10, to serve patients with complex medical, behavioral, and social challenges through CLOV’s Clover Home Care program in the states of New York, Pennsylvania, Georgia, and Texas. As a participant in the U.S. Centers for Medicare and Medicaid Services’ (CMS) new Direct Contracting model, CLOV, together with Upward Health, will focus on reducing costs through improved health outcomes.
On May 24, Scott+Scott Attorneys at Law LLP, an international securities and consumer rights litigation firm, announced it is investigating whether certain directors and officers of CLOV had breached their fiduciary duties to Social Capital Hedosophia Holdings Corp. III (IPOC) and its shareholders. After CLOV closed a merger transaction with IPOC on January 7, 2021, Hindenburg Research published a report alleging that CLOV was misleadingly hiding governmental investigations from the public.
Recent Financial Results
HUM’s adjusted revenues for its fiscal first quarter, ended March 31, 2021, increased 9.6% year-over-year to $20.75 billion. The company’s adjusted pre-tax income was reported at $1.26 billion, which represented a 21.3% year-over-year improvement. Its net income increased 75.1% year-over-year to $828 million. Its adjusted EPS increased 42% from the prior-year period to $7.67. The company had $3.88 billion in cash and cash equivalents , as of March 31, 2021.
For its fiscal first quarter ended March 31, 2021, CLOV's total revenues increased 21% year-over-year to $200.33 million. However, the company’s loss from operations came in at $119.09 million, which represents a 347.2% rise from the prior-year period. Its comprehensive loss increased 85% year-over-year to $48.91 million. Its loss per share is reported at $0.13 for the quarter, down 59.4% from the year-ago period. CLOV had $404.51 million in cash and cash equivalents, as of March 31, 2021.
Past and Expected Financial Performance
HUM's revenue and EBITDA grew 16.5% and 46.3%, respectively, over the past year. The company’s EPS has grown 44.2% over the past year.
Analysts expect HUM’s revenue to increase 5.9% in the current year and 10.5% next year. Its EPS is expected to increase 15.2% for the current year and 14.1% next year. The stock’s EPS is expected to grow at a 13.5% rate per annum over the next five years.
In comparison, CLOV’s revenue and EBITDA grew 42.2% and 13%, respectively, over the past year. The company’s EPS has declined 73.3% over the past year.
Analysts expect CLOV’s revenue to increase 21.8% in 2021 and 30.4% next year. However, its EPS is expected to remain negative in the current year and next year. However, analysts expect the stock’s EPS to grow at a 32% rate per annum over the next five years.
Profitability
HUM’s trailing-12-month revenue is 109.5 times CLOV’s. HUM is also more profitable, with a 19.8% gross profit margin versus CLOV’s 8.6%.
Also, HUM’s EBITDA margin, ROE and ROTC values of 6.9%, 28% and 15.2%, respectively, compare favorably with CLOV’s negative values.
Valuation
In terms of non-GAAP forward P/E, HUM is currently trading at 21x, compared to CLOV’s negative 19.80x. CLOV’s 5.41x forward EV/Sales is 611.8% higher than HUM’s 0.76x.
Also, in terms of trailing-12-month Price-to-Book, CLOV’s 8.17x is 98.8% higher than HUM’s 4.11x.
Thus, HUM is more affordable here.
POWR Ratings
While CLOV has an overall F grade, which translates to Strong Sell in our proprietary POWR Ratings system, HUM has an overall B grade, which equates to Buy. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.
In terms of Quality, HUM has been graded a B, which is consistent with its higher-than-industry profitability ratios. The company’s 6.5% trailing-12-month EBIT margin is 277.3% higher than the 1.7% industry average. In comparison, CLOV’s D grade for Quality is in sync with its negative EBIT margin.
HUM has a B grade for Value, which is consistent with its lower-than-industry valuation ratios. The company’s 3.68x forward Price/Book value is 18.6% lower than the 4.51x industry average. However, CLOV’s F grade for Value reflects its extreme overvaluation. The stock is currently trading at 6.85x forward Price/Book value, which is 51.7% higher than the 4.51x industry average.
Of 12 stocks in the B-rated Medical – Health Insurance industry, CLOV is ranked #12, while HUM is ranked #5.
Beyond what we’ve stated above, our POWR Ratings system has also rated both HUM and CLOV for Growth, Momentum, Stability, and Sentiment. Get all CLOV ratings here. Also, click here to see the additional POWR Ratings for HUM.
The Winner
Because employers are ensuring insurance coverage for their employees and their families, people are now enrolling into long-term insurance plans in greater numbers. Both HUM and CLOV could deliver substantial returns from their affordable and attractive upgraded policies. However, we think securities violations and fiduciary breaches filed against CLOV, along with its overvaluation and negative profit margins, make HUM a better buy here.
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.
Click here to checkout our Healthcare Sector Report for 2021
HUM shares were trading at $455.27 per share on Wednesday afternoon, up $1.68 (+0.37%). Year-to-date, HUM has gained 11.33%, versus a 16.90% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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