UnitedHealth’s Bad News Hits Insurers, But Sparks Surgery Partners Breakout

UnitedHealth Group‘s (UNH) warning late Tuesday of higher-than-expected medical costs in Q2 sent UNH stock, Humana (HUM) and other insurers sharply lower in early Wednesday stock market action. But the increased demand for hip and knee surgeries for Medicare Advantage patients helped give Surgery Partners (SGRY) a boost into buy range.

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Smith & Nephew (SNN), a U.K.-based developer of knee and hip implants, led a number of medical products stocks higher.

UNH Sees Pent-Up Demand

At a Goldman Sachs healthcare conference, Tim Noel, CEO of UnitedHealth’s Medicare and retirement business, said that medical care usage was normalizing after a pandemic-induced slowdown.

“We’re seeing that more seniors are just more comfortable accessing services for things that they might have pushed off a bit like knees and hips,” he said.

Higher demand is likely to drive up UnitedHealth’s second-quarter medical loss ratio, the share of premiums paid out as benefits. Noel said the medical loss ratio in Q2 should come near the top or moderately above its full-year guidance range of 82.1% to 83.1%.

Outpatient Surgery Offset

Barclays analyst Steve Valiquette trimmed his Q2 EPS forecast for UnitedHealth by 25 cents to $24.70 on the news. His new forecast also takes into account a partial offset as UnitedHealth’s outpatient surgery centers see more business.

UNH stock slumped 8.4% early Wednesday, setting a 202 lows. HUM stock was the biggest loser, tumbling 14%. Meanwhile, Elevance Health (ELV) fell 7.7%, Cigna (CI) 3.4%, Centene (CNC) 9% and CVS Health (CVS) 6%.

Among health providers, SGRY stock jumped 4.5% to 31.25 in volatile initial action. Tenet Healthcare (THC) 8.2%. HCA Healthcare (HCA) climbed 4.5%.

Medical equipment firms also were bid higher. SNN stock rose 4.5% and Boston Scientific (BSX) 3.5%. Zimmer Biomet Holdings (ZBH) gained 4% after bouncing from its 50-day line Tuesday in an emerging new base.

Surgery Partners Stock

SGRY stock, after closing down 0.4% to 39.12 on Tuesday, traded up 9% to 42.64 early Wednesday, vaulting into a buy zone. Surgery Partners stock has a cup-with-handle buy point of 40.52 that it needs to clear. The buy point runs to 42.55.

SNN Stock

Smith & Nephew traded up to 31.25 early Wednesday, lifting SNN stock back over its 50-day moving average. SNN stock has a 33.09 buy point from a seven-week flat base, but could be a candidate for an early entry if it breaks the down-sloping trend line from its recent April 28 high.

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