Midterm elections buoy healthcare stocks

Insurer and hospital stocks traded higher on Wednesday in the wake of the midterm elections, in which Democrats won the majority of seats in the House of Representatives and several states passed ballot initiatives to expand Medicaid under the Affordable Care Act.

The Democrat-controlled House and Republican-majority Senate make it unlikely that Republicans will revive a push to repeal and replace the landmark healthcare law. And investors like the newfound stability to markets that have long been characterized by uncertainty.

"Investors were just staying on the sidelines because there was a lot of uncertainty over what the outcomes would have been," said Ana Gupte, equity analyst with Leerink Partners. "Now it's clear. You know where you stand, and there's not much that can happen legislatively."

Among insurers, those serving Medicaid beneficiaries received the highest boosts in stock prices on Wednesday. Centene Corp. was up 9.2% as of market close; Molina's stock rose 10.5% and WellCare Health Plans was up 7.3%.

Voters in Idaho, Nebraska and Utah approved ballot initiatives to extend Medicaid coverage to adults with incomes up to 138% of the federal poverty level. Republican governors and lawmakers in those states had repeatedly refused to pass it legislatively.

And in Maine, voters elected a Democratic governor who is expected to push Medicaid expansion through. Voters there had overwhelmingly approved expansion in a ballot initiative last year, but the Republican Gov. Paul LePage refused to implement it.

While those aren't states with large Medicaid populations, it's still a positive sign and is helping buoy stocks, said Brian Tanquilut, equity analyst at Jefferies. Likewise, investor-owned healthcare system HCA Healthcare is trading 4.7% higher at close, reaching its highest price in at least a year. HCA's shares have been trading higher since its third quarter earnings call on Oct. 30. Tanquilut said about 3% of HCA's hospital beds are in Utah and Idaho.

Meanwhile, Aetna's shares rose 0.9%; Anthem's rose 6.6%; Cigna was up 2.8%; and UnitedHealth Group's shares were up 4.2%. Gupte explained the large, diversified managed-care organizations like these, who all have or will soon have a foot in the pharmacy benefit management space, are benefiting from the expectation that a divided government means nothing will change legislatively regarding the PBM model and rebates.

Humana's stock prices closed 6.6% higher, but that's more of a reflection of the third-quarter financial results it released Wednesday morning.

Investor-owned hospital stocks were also up on Wednesday. The increased Medicaid expansion, bipartisan support for increased opioid treatment funding and continued lower corporate tax rate under the Tax Cuts and Jobs Act all bode well for hospitals, Gupte said in a Wednesday research note.

Tenet Healthcare Corp.'s share price was up 8.1% at close, in sharp contrast to earlier in the week. Shares of the Dallas-based hospital chain plunged in value following the company's third quarter earnings call on Tuesday, in which Tenet's CEO called its hospital segment growth "not acceptable."

Universal Health Services ended the day up 2.8%, its highest close since August. The King of Prussia, Pa.-based hospital chain's stock price dropped slightly after its third quarter release, which revealed it won't likely meet a behavioral health revenue growth goal by the year's end.

LifePoint Health was up just slightly at 0.03%.

DaVita's and Fresenius Medical Care's stock prices also soared on Wednesday, up 9.9% and 8.9%, respectively. California voters on Tuesday rejected a ballot initiative that would have capped their reimbursement at 15% above the direct costs of dialysis treatment. The companies and a massive coalition including the state's major provider trade associations—the California Hospital Association and California Medical Association—spent $110 million to defeat the measure.