Humana Inc HUM

While the Election Looms, Near-Term Regulatory Risks Look Manageable for Managed-Care Organizations

Managed-care organizations face significant regulatory risks that often crop up during election cycles and keep all our MCO moat ratings at narrow. Fortunately for MCO investors, the near-term regulatory risks of this election cycle look manageable, in our opinion, despite current pockets of weakness in Medicare Advantage, Medicaid, and pharmacy benefit management. Some of these near-term regulatory risks are even creating opportunities for long-term MCO investors. For example, our Best Idea in the industry is Humana, which continues to face uncertainty around its intermediate-term profit trajectory in the highly regulated Medicare Advantage market. Medicaid and individual plan leader Centene also looks undervalued while CVS' problems in Medicare Advantage and PBM transparency concerns keep its shares deeply discounted. Cigna, Elevance, and UnitedHealth shares look fairly valued to us.