In this article, I evaluated two medical stocks, Clover Health Investments, Corp. (CLOV) and Elevance Health, Inc. (ELV), to analyze whether to buy, hold or sell this year. After thoroughly evaluating these stocks, I think ELV might be a superior choice for the reasons discussed in this article.
The medical sector is experiencing a boost due to the growing use of big data in healthcare, the increasing use of EHR and EMR systems, the help given to keep patients’ electronic health records up to date, and regulatory requirements.
Also, the market is growing amid the rising awareness of the benefits of digital health services. The global digital healthcare market is anticipated to grow at a CAGR of 23.7% until 2030, reaching $1.30 trillion.
Additionally, health insurance is becoming increasingly important globally with the increase in geriatric population, prevalence of chronic illnesses, and increasing global demand for quality healthcare services. The global health insurance market is expected to exhibit a revenue CAGR of 5.6% to reach $5.66 trillion in 2032.
CLOV declined 10.6% over the past three months compared to ELV’s 8.2% gain. The stock has gained 2.5% over the past year compared to ELV’s 1.5% gain.
Here are the reasons why I think ELV might perform better in the near term:
Recent Developments
On November 7, CLOV teamed up with WellBe Senior Medical to deliver home-based medical care to residents of Georgia living with multiple complex health conditions. By providing a new option for home-based medical care, CLOV helping its members achieve their health goals with access to quality care through WellBe's in-home visits.
On the contrary, ELV announced that it had entered into an agreement to acquire Paragon Healthcare, Inc., a company specializing in life-saving and life-giving infusible and injectable therapies.
Recent Financial Results
CLOV’s insurance revenue increased 12.4% year-over-year to $301.20 million for the third quarter that ended September 30, 2023. However, its adjusted EBITDA came in at $5.10 million and net loss stood at $41.50 million.
On the contrary, for the fiscal third quarter that ended September 30, 2023, ELV’s total revenue increased 7.3% year-over-year to $42.85 billion. In addition, the company’s adjusted net income came in at $2.13 billion and $8.99, up 17.6% and 20.5% year-over-year, respectively.
Past And Expected Financial Performance
Over the past three years, CLOV’s revenue increased at a 57.6% CAGR. Its revenue is expected to decline by 42.6% in the year ended December 2023 and 47.3% in the fourth quarter ended December 2023. However, its EPS is expected to increase 50.9% in the year ended December 2023 and 47% in the fourth quarter ended December 2023.
Conversely, ELV’s revenue has increased at a CAGR of 12.8% over the past three years. Analysts expect CLOV’s revenue to increase by 9.1% in the year ended December 2023 and 6.2% in the fourth quarter ended December 2023. Its EPS is expected to gain 13.8% in the year ended December 2023 and 7.2% over the fiscal fourth quarter (ended December 2023).
Valuation
CLOV’s forward P/S multiple of 0.23 is lower than ELV’s 0.66. CLOV’s forward EV/Sales multiple of 0.08x is lower than ELV’s 0.75x.
Profitability
CLOV’s trailing-12-month gross profit margin of 8.92% is lower than ELV’s 27.04%. In addition, CLOV’s trailing-12-month levered FCF margin of 1.74% is lower than ELV’s 3.58%.
Thus, ELV is more profitable.
POWR Ratings
CLOV has an overall rating of C, which equates to a Neutral in our proprietary POWR Ratings system. Conversely, ELV has an overall rating of A, translating to Strong Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. CLOV has a C grade for Quality. Its trailing-12-month levered FCF margin of 1.74% is 491.6% higher than the industry average of 0.29%. However, its cash per share of 0.61x is 50.6% lower than the industry average of 1.24x.
On the other hand, ELV has a B grade in Quality. Its trailing-12-month levered FCF margin of 3.58% is significantly higher than the industry average of 0.29%. Its trailing-12-month cash per share of 46.48x is significantly higher than the 1.24x industry average.
Moreover, CLOV has an F grade for Stability, which is justified by its 24-month beta of 1.66. On the other hand, ELV has a B grade for Stability, which is in sync with its 24-month beta of 0.49.
Among the 12 stocks in the in the A-rated Medical - Health Insurance industry, CLOV is ranked #10, while ELV is ranked #5.
Beyond what we’ve stated above, we have also rated both stocks for Momentum, Growth, and Sentiment. Get all CLOV ratings here. Click here to view ELV ratings.
The Winner
The medical industry is seeing growth due to increasing medical needs and inelastic demand for healthcare products and services. Industry players such as CLOV and ELV are well-positioned to benefit from these industry tailwinds.
ELV’s higher profitability and lower beta values make it the better buy here.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Medical - Health Insurance industry here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
ELV shares were trading at $478.28 per share on Monday afternoon, down $1.75 (-0.36%). Year-to-date, ELV has gained 1.43%, versus a -0.97% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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