(Bloomberg) — U.S. health-care stocks are poised for a potentially ugly trading session Monday as investors weigh in on a judge’s ruling that Obamacare is unconstitutional.
A judge sided with Texas late Friday in a lawsuit alleging that Congress’s decision in 2017 to kill a related tax penalty essentially voided the entire Affordable Care Act. While many analysts expect the ruling to be reversed by higher courts, the news adds to volatility in a sector that had barely recovered from political overhangs this year and yet remains the top performing sector in the S&P 500.
U.S. hospital stocks are most at risk from the latest ruling, and could be down materially, according to Jefferies health-care strategist Jared Holz. Health insurers could also drop, but some of that may be priced in because they fell ahead of the ruling, he said.
“Texas just really messed with us,” Holz said in a note. “The market skittishness could cause exaggerated moves in health-care stocks tomorrow and early in the week.”
Health-care investors already were licking their wounds from Johnson & Johnson’s $45 billion plunge on Friday related to a Reuters report about asbestos in baby powder.
Centene Corp. and Molina Healthcare Inc. could bear the brunt of the selloff in managed care given their exposure to Medicaid and Obamacare markets, also known as the public exchanges. Both insurers have a total ACA exposure of more than 40 percent of EPS, followed by WellCare Health Plans Inc. at 10 percent, JPMorgan analyst Gary Taylor reminded investors in an email late Friday.
Across publicly traded hospitals, earnings exposure to the health-care law is as much as 10 percent, Leerink Partners analyst Ana Gupte wrote in a note. She cautioned that facilities could see a drop in patient volumes and a rise in unpaid bills if people lose their health insurance.
A potential selloff threatens to diminish or erase payers’ and providers’ gains this year, with S&P 500 Managed Care Index up 17 percent and the Bloomberg Intelligence Hospitals Index up 5.9 percent.
Holz said other subsectors, including medtech, pharma and biotech, could also feel the aftershock. “This could all be an excellent buying opportunity depending on magnitude of moves and the next steps around another court entering a stay,” he wrote.
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