The business of healthcare looks as strong as ever. But lately, health stocks are a very different story.
Through Thursday, health stocks have returned about 7% so far this year. That lags behind the S&P 500 by about 5 percentage points. A broad index of small biotechnology shares is down so far this year, as other similarly speculative assets have surged. That underperformance belies the reality that the health economy, which accounts for nearly 18% of gross domestic product, is largely back to normal after a year of pandemic-driven disruption.
The first-quarter earnings season is off to a strong start. UnitedHealth Group, UNH -0.10% the largest publicly traded U.S. insurer and an industry bellwether, said Thursday that revenue grew 9% from a year earlier in the first quarter and increased its 2021 earnings forecast. The company now expects to earn between $18.10 and $18.60 a share on an adjusted basis this year, good for roughly 9% growth from 2020. That forecast includes a pandemic-related hit to earnings of about $1.80 a share, resulting from factors such as extra Covid-19 testing and treatment costs, higher unemployment and the impact to patients of having deferred routine care in 2020.
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Deal activity is still fairly strong: Life-science supplier Thermo Fisher Scientific TMO -0.21% announced last week a deal to purchase the pharmaceutical-testing company PPD PPD 0.03% for $17.4 billion in cash and stock, a roughly 24% premium. U.S. regulators gave the green light to drugmaker AstraZeneca’s AZN 1.61% planned acquisition of Alexion Pharmaceuticals, ALXN 1.04% which was earlier than investors had expected. Alexion shares shot higher in response.
Healthcare investors should always be wary of changes to regulations governing insurance coverage, drug pricing and other key business factors. There is some uncertainty there—for instance, the Biden administration has yet to nominate a permanent commissioner of the Food and Drug Administration. Still, any wholesale change to the status quo seems unlikely in the near term, as the administration has focused on other priorities. Meanwhile, long-run industry tailwinds, such as an aging population, remain intact.
The onset of the pandemic caused significant financial losses throughout the industry, as hospitals had to halt elective procedures in some cases and some patients chose to defer nonemergency care. But the backlog created by those delays should shrink steadily as the pandemic moderates. Meanwhile, Covid-19 is likely to linger well after the pandemic is over: The public-health apparatus of testing, treatments and vaccines should be an additional steady business opportunity for the industry in the years ahead. For example, Pfizer PFE 0.43% Chief Executive Albert Bourla has said it is likely that people who receive Covid-19 vaccines will need booster shots.
Meanwhile, valuations are fairly reasonable, especially in a market characterized by wild speculation in story stocks and cryptocurrencies. UnitedHealth trades at about 21 times this year’s forecast, while Pfizer shares can be had for about 12 times. Both multiples are in line with historical valuations in recent years.
Should the currently boundless enthusiasm for speculation diminish, these stocks will look more like a portfolio tonic than an affliction.
Write to Charley Grant at charles.grant@wsj.com
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The Link LonkApril 19, 2021 at 06:03PM
https://www.wsj.com/articles/post-covid-19-dont-forget-about-healthcare-stocks-11618830180
Post Covid-19, Don’t Forget About Healthcare Stocks - The Wall Street Journal
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