Health care has been a reliable place for investors to shelter during recessions. It would seem even safer in a recession caused by a health crisis, but things aren’t so simple.
The sector’s reputation for performing well in tough times has held up so far this year. The S&P Health Care Index has shed just 2%, outpacing the broader U.S. stock market by about 8 percentage points through Thursday.
In typical downturns, health care stocks tend to shine for a fairly simple reason: the business of health care can continue when more discretionary spending, such as travel or meals at restaurants, might not. After all, a patient’s medication, x-Ray or pacemaker typically isn’t something to put off.
As a result, steady, predictable growth in spending tends to be the rule of the road, even in extraordinarily tough times. Americans spent about $2.2 trillion on medical care in 2006 and $2.5 trillion in 2009, on either side of the 2007-09 recession, according to Centers for Medicare and Medicaid Services Data. Health spending reached 17.7% of gross domestic product in 2018, up from 13.4% in 2000.
Even as the Covid-19 pandemic has taken hold, some corners of the health ecosystem, such as big drugmakers and insurers, have been the picture of health.
Major blue-chip stocks like Johnson & Johnson, which announced a dividend increase, and Abbott Laboratories are near record highs. Insurance giant UnitedHealth Group affirmed its original 2020 profit outlook earlier this month at a time when very few public companies will be able to credibly do so. A diverse product line and a strong balance sheet, as these companies offer, can go a long way with investors.
Every recession is different, though, and the coronavirus fallout has upended medical operations in a way that the Savings and Loan crisis, dot-com bust, and subprime lender meltdown never could. Elective surgeries, for example, have largely ground to a halt. They are a key profit center for hospitals and the companies that supply needed devices, drugs and surgical tools.
It is too early to precisely gauge the long-term financial fallout, but early signs are highly discouraging. For starters, health care accounted for nearly half of the sharp first-quarter decline in gross domestic product in the first quarter.
A survey of hospital systems by an industry trade group found more than half of respondents had less than six months worth of cash on hand. Analysts at Oppenheimer conducted a separate survey of 68 U.S. hospital chief financial officers, including 10 located in Covid-19 hot spots.
Almost 80% of respondents said elective surgeries are on hold at their local hospital or system. Within that group, roughly two thirds said they were expecting a one to two month hold, while the remainder expected a two to four month dark period. The operational impact of that lost revenue has been drastic: More than half the executives reported staffing cuts, while nearly 80% have halted capital spending.
True, medical spending will almost certainly recover more quickly than, say, hospitality, but working through the backlog of needed patient care will take time: Johnson & Johnson told Wall Street analysts last month that the U.S. hospital system could increase surgical procedure capacity by just 30% by operating around the clock.
There are signs that the crisis could have a longer term financial impact as well. Nearly half of those surveyed by Oppenheimer expected capital spending budgets to drop 10% or more in 2021. The trouble at hospitals, many of which operate on a nonprofit basis, have affected publicly traded companies that serve them: There have been more than 125 mentions of elective surgeries or procedures on corporate earnings calls since the start of March, according to financial research firm Sentieo. Comparable monthly mentions peaked at 31 in February 2009 during the last recession.
Drugmakers won’t face as big of a financial hit as device manufacturers, but Covid-19 can still sting: Merck & Co. cut its full year earnings forecast on Tuesday as it warned of delays in patients receiving its drugs that are administered by a physician. Those types of drugs account for roughly two thirds of the company’s revenue.
Even drug companies that haven’t seen a sales hit could be affected: Some hospitals have barred sales representatives to prevent the spread of the virus, slowing adoption of new medications. And, even as patents on current blockbusters draw inexorably closer to expiring, the pipeline of coming drugs to replace that lost revenue has been delayed as clinical trials get disrupted to protect patients.
Then there is the reality that some health spending is discretionary and therefore unlikely to be immune from economic pressures. Align Technology, which makes Invisalign teeth-straightening devices, withdrew its full year profit forecast on Wednesday afternoon and said it couldn’t provide a second-quarter outlook.
Expecting a familiar investing script to play out for health care in this recession could be an expensive mistake.
Write to Charley Grant at charles.grant@wsj.com
Copyright ©2019 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
"care" - Google News
May 01, 2020 at 04:37PM
https://ift.tt/35q2JdA
Betting on Health Care May Be Hazardous To Your Wealth - The Wall Street Journal
"care" - Google News
https://ift.tt/2N6arSB
Shoes Man Tutorial
Pos News Update
Meme Update
Korean Entertainment News
Japan News Update
Bagikan Berita Ini
0 Response to "Betting on Health Care May Be Hazardous To Your Wealth - The Wall Street Journal"
Post a Comment