Morningstar

The Election and Our View on the Healthcare Industry

The two major U.S. election scenarios will not change our view of the healthcare industry's moats or valuations.

As of Nov. 8, two major U.S. election scenarios remain possible for the federal government, but we think a split government appears most likely, which would not change our view of the healthcare industry's moats or valuations.

Currently, major news outlets have projected that the Democrats will control the White House and the House of Representatives, but key elections in the Senate appear up for grabs. Based on recent vote counts, Republicans will probably control 50 seats and the Democratic caucus will probably control 48 seats, before Georgia holds run-off elections in January for the two remaining Senate seats. Given the November votes and Georgia's history as a Republican-leaning state, we would be surprised if a Republican does not win at least one of those seats, which would keep the Senate's control in Republican hands. In this most likely scenario, major healthcare policy reforms are unlikely through the legislative branch, which would largely maintain the status quo from a moat and valuation perspective in the healthcare industry.

Such a split scenario would increase the importance of the Supreme Court case scheduled to be heard on Nov. 10, though. If the judicial branch fully strikes down the Affordable Care Act, millions of Americans would lose health insurance through various ACA channels, including Medicaid expansion and the individual exchanges. This scenario could have negative effects for pockets of the healthcare industry, such as managed care companies with significant Medicaid and individual exchange exposure like Centene and hospitals like HCA and Tenet. If the ACA is struck down without an adequate replacement in this scenario, we see downside risks of 35% at Centene, 25% at Tenet, and 15% at HCA from our fair value estimates. The earnings power of other managed care providers could be mildly affected, as well, but based on our analysis, we do not think they would be material to valuation.

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About the Author

Julie Utterback, CFA

Senior Equity Analyst
More from Author

Julie Utterback, CFA, is a senior equity analyst, AM Healthcare, for Morningstar*. She focuses on medical technology and service companies. She covers managed care organizations including UnitedHealth, service providers like HCA, medical suppliers such as Baxter, and life sciences companies like Danaher. She is also the chairperson of the equity research team’s capital allocation methodology.

Before joining Morningstar in 2005, Utterback was an equity analyst at State Farm Insurance for several years. Utterback joined Morningstar in 2005 as an equity analyst in the healthcare industry, and initially she primarily covered medical technology companies, including orthopedic device, medical equipment, and cardiac device firms. In 2010, she joined Morningstar's credit research team, initiating coverage of the entire healthcare industry and generally helping the organization expand and maintain its credit coverage across many industries. She held that senior credit analyst role until April 2019, when she returned to the equity team to cover medical technology and service companies.

Utterback holds a bachelor's degree in finance from the University of Illinois Urbana-Champaign’s Gies College of Business. She also holds the Chartered Financial Analyst® designation.

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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