Posted on 11/09/2004 4:07:18 PM PST by SierraWasp
Health stocks on merger, re-election roll
By Laura Gilcrest, CBS MarketWatch Last Update: 2:28 PM ET Nov. 9, 2004
WASHINGTON (CBS.MW) -- Shares of health care insurers got another shot Tuesday, largely due to the expected merger of WellPoint Health Networks and Anthem.
Nevertheless, market analysts say other factors have boosted the stocks in recent weeks.
WellPoint (WLP: news, chart, profile) shares rose 6.98 percent to $$112.30 in early afternoon trading; Anthem (ATH: news, chart, profile) stock advanced 4.86 percent to $90.70; Humana (HUM: news, chart, profile) shares surged 2.42 percent to $22.81; and Aetna (AET: news, chart, profile) shares moved up 2.93 to $106.58.
As anticipated, the latest boon came from a report early Tuesday that California Insurance Commissioner John Garamendi had backed down from his stand against the merger between WellPoint and Anthem -- a deal that will create the country's largest health-insurance carrier.
Garamendi's capitulation is only the latest source of relief for the health care industry, after shedding fears that Democrats would win the White House or wrest control of the Senate to usher in greater government controls, according to market analyst Michael Baker of Raymond James & Associates
Tuesday's rally "is more add-on to [investor reaction to] Bush's re-election; the Democrats were putting regulatory pressure on the health care industry," he said. "The overall tone is that there will be less government involvement [under Bush], rather than more.
"We're seeing a potential concession from Garamendi, when he could have dragged his feet longer," Baker added. The California commissioner's change of heart is another part of the broader political concession by Democrats, he said.
Market analyst Charles Boorady of Smith Barney Citigroup agreed that re-election of the perceived "pro-business" incumbent has played a strong role in the stock rally of recent weeks, but he said that health insurers as a whole simply had a good quarter.
The major players posted strong third-quarter earnings and bolstered their quarterly enrollment as a result of a job surge in the latest quarter, he added.
Another factor driving up health care stocks was Tuesday's upgrade of Cigna (CI: news, chart, profile) stock by J.P. Morgan Securities, said Baker of Raymond James.
The brokerage bumped up Cigna's stock from "neutral" to 'overweight" after a trip to the health insurer's Connecticut offices.
"We are upbeat on the potential for solid stock performance over the next 12 to 18 months, since the company provided more compelling evidence that the turnaround should prove sustainable, and allow for further margin expansion overt the next two to three months," Raymond James wrote in a note.
J
.P. Morgan also increased its 2005 earnings estimate for Cigna to $6.35 from its previous forecast of $6.19, a figure that surpasses Cigna's 2005 projection of $5.50 to $6 and the Wall Street consensus of $6.17.
The brokerage also raised its 2006 earnings estimate to $7.35 from $6.82, above the Wall Street forecast of $7.03.
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