Wall Street will be on full alert next week to see if healthcare companies' earnings reports will rejuvenate their slumping stocks and the broader U.S. market.
Johnson & Johnson, the popular consumer products conglomerate that also has massive pharmaceutical and medical-device businesses, will file earnings Tuesday. Health insurer UnitedHealth Group releases third-quarter financials Thursday.
Most other investor-owned healthcare companies will report their earnings the last two weeks of October and the beginning of November.
Healthcare stocks have boomed the past several years, thanks at least in part to the Affordable Care Act and the economy's continued reliance on the healthcare sector. But the past few months have been rocky as investors fled to the seller's window.
UnitedHealth's stock price dropped 5% between July 1 and Sept. 30 despite double-digit growth in profit. The larger health insurance companies are down 14.6% since the end of the second quarter, while the smaller publicly traded insurers fell 21%, said Chris Rigg, an analyst at Susquehanna Financial Group.
Similar to other companies trading on Wall Street, most of the industry's drop occurred in August. China's volatile stock market and the generally overinflated bull market forced stocks downward in what many analysts saw as a somewhat expected “correction.”
At least for health insurers, analysts predict solid results for the third quarter. Overall growth in medical costs is projected to be “benign” even though hospital admissions have ticked up lately, Rigg said.
Many analysts believe insurers will overcome the short-term investor sell-off because of the large expansion in government insurance programs. “We believe Medicare and Medicaid to be in the first years of a 10-15 year growth cycle that could drive the managed-care markets to double,” Sarah James, an analyst at Wedbush Securities, said in a research note this week.
The bigger concern for insurers right now is consolidation—and the related scrutiny from lawmakers and regulators. Aetna is acquiring Humana, and Anthem is buying Cigna Corp. Those deals are expected to close in the second half of 2016, assuming they win the blessing of the Obama administration.