AHCA bill failure in the House last week…
By Bryan Dooley | March 28, 2017
AHCA bill failure in the House last week was generally perceived as a setback to the Trump ‘reflation trade’ as it calls into question the overall effectiveness of the new Administration and their ability to accomplish other important goals such as tax reform and infrastructure spending. However, a bright spot for LOM is our overweight to the better-bid healthcare sector which is helping the relative performance of our equity strategies. Yesterday, the healthcare group continued to perform well during yesterday’s otherwise slopping trading.
“The SPDR S&P Pharmaceuticals (XPH) was among the best performing exchange-traded funds on Monday, gaining 2.6%. Meanwhile the S&P 500 dipped 2.39 points or 0.10% to 2341.59. Pharmaceuticals aren’t the only stocks gaining. Of all the S&P 500 sectors, health care was the biggest winner on Monday followed by materials, information technology, and consumer discretionary. The SPDR S&P Health Care Services ETF (XHS) continued to dance on the grave of the failed GOP health care bill. It gained 1.4% on Monday, following its 1.4% climb on Friday. Leerink’s Ana Gupte says that ultimately Medicaid HMOs win, but she has a mixed view of hospitals. Gupte raised price targets on HCA Holdings (HCA), LifePoint Health (LPNT), Universal Health Services (UHS) and managed Medicaid stocks Centene (CNC) and Molina Healthcare (MOH). Top picks are still Humana (HUM), UnitedHealth Group (UNH) and Anthem (ANTM).”
Managed Medicaid names CNC and MOH, that are exposed meaningfully to HIX at ~12% of earnings for CNC and 15% and 25%+, respectively, to Medicaid expansion, are the clearest winners as the generous HIX and Medicaid expansion subsidies remain in place. Hospital impact is more mixed with near-term downside as Exchanges further destabilize in 2018, without the assured relief of DSH cut repeal and Medicaid waiver funding in 2018, though benefit in the medium term as generous Exchange and Medicaid expansion subsidies are not rolled back starting 2020. The future stance of the Trump Administration toward waivers for new State Medicaid expansions is unclear post the failed vote, while FMAP subsidies will continue to diminish to 90% by 2020 under ObamaCare potentially prompting State rate clawbacks in 2018 and beyond.” Kim Crystal, Barrons.
JP Morgan: “Healthcare stocks surged with the Republicans failed efforts to repeal and replace Obama care. Distributors, services, biotech, and pharma are all trading well while the HMO’s are underperforming. Medtech is trading down with the tape while tools are up or down small. ABBV, CELG, GILD, and REGN are trading in the green. best performers: HCA, UHS, REGN, CNC, MNK. Worst performers: ALXN (M&A money comes out as it named a new CEO), HUM, ANTM, CI, AET.”