In this video, Chuck Carnevale, co-founder of FAST Graphs (“Mr. Valuation”), examines five managed healthcare stocks (companies) to assess whether they have recovered from recent industry challenges or remain “sick”. The companies analyzed are UnitedHealth Group (UNH), Elevance Health (ELV), Humana (HUM), Centene (CNC), and Molina Healthcare (MOH).

Industry Context

All of these managed healthcare stocks were impacted by a widespread miscalculation of morbidity rates—the expected level of sickness and claims. Their actuaries underestimated how much care patients would require, which dramatically increased costs and hurt profitability across the sector. This problem, linked in part to post-COVID health issues, led to sharp declines in earnings in 2024 and 2025.

Despite this setback, most companies maintain investment-grade credit ratings, manageable debt, and—except Molina—pay dividends. The key differences come down to valuation, quality, and recovery potential.

Company Analyses

Centene (CNC)

• Once had an excellent long-term earnings record, growing rapidly up to 2024.
• Currently facing the steepest decline in the group, with earnings projected to drop 76% in 2024.
• Analysts forecast strong recovery, but near-term risk is very high.
• Historically accurate analyst estimates suggest recovery is possible.
• No dividend, but potential for outsized returns if growth materializes.
• Considered a broken earnings story but with high rebound potential.

Elevance Health (ELV)

• One of Carnevale’s favorites in the group.
• Earnings growth stalled in 2024, but expected to recover at ~9% annually going forward.
• Strong credit (A rating), solid balance sheet, and highly manageable debt.
• Dividend payout ratio modest (around 25%), well covered by cash flow, with room for growth.
• Margins weakened but are now improving, suggesting a turnaround.
• Viewed as the strongest and most resilient of the group, with potential for ~30% annualized returns when combining growth, dividends, and valuation expansion.

Humana (HUM)

• Struggled for several years with declining earnings.
• Analysts continue to cut estimates, projecting only 2–3% returns going forward.
• Despite reasonable quality, its muted outlook and low dividend potential make it unattractive at present.
• Carnevale removes it “off the table” as an investment candidate for now.

Molina Healthcare (MOH)

• The smallest player, under $10 billion market cap, rated below investment grade (BB).
• No dividend and carries higher risk due to weaker balance sheet and greater debt exposure.
• Despite this, earnings are expected to grow around 8.5% annually, which could deliver strong returns (~35% annually) if forecasts are achieved.
• Viewed as the riskiest bet in the group, suitable only for aggressive investors.

UnitedHealth Group (UNH)

• The giant of the industry, with a long record of consistent double-digit growth.
• Investors historically paid premium valuations, often above intrinsic value, which limited returns despite solid earnings growth.
• Now facing a projected 42% earnings decline in 2025, making its near-term outlook poor.
• Long-term growth (8–16% projected for 2026–27) remains intact, but current valuation leaves little margin for error.
• Chuck concludes it is not especially attractive at current pricing, with only 3–4% expected annualized returns.

Broader Lessons on Valuation and Risk

Chuck emphasizes FAST Graphs’ role as a “thermostat” that measures intrinsic value through discounted cash flow logic. The orange line on FAST Graphs charts represents fair value (PE 15 or earnings yield 6.67%). Prices above it indicate overvaluation and risk, while prices below suggest opportunity.

He stresses that valuation risk can erode returns even when businesses perform well. UnitedHealth is a prime example: strong earnings growth but overvaluation limited shareholder gains. Conversely, Centene illustrates how mispriced actuarial assumptions can devastate profitability, showing why due diligence beyond raw statistics is essential.

Forecasts and Outlook

Looking ahead:

• Centene: Highest projected return (~47% annually) due to sharp recovery potential, but risky.
• Elevance: Most balanced risk/reward, offering ~30% potential returns with strong fundamentals and dividend support.
• Humana: Weak near-term outlook, minimal growth, and unattractive returns.
• Molina: High-return potential but speculative due to weaker credit quality.
• UnitedHealth: High-quality but expensive, limited near-term returns, vulnerable to headwinds.

Overall, Chuck believes most of these companies—except possibly Molina—are capable of “righting the ship” by adjusting actuarial assumptions and re-pricing products appropriately. Much depends on how quickly they recover margins and restore profitability.

Final Takeaways

• Managed care companies were blindsided by post-COVID morbidity miscalculations, leading to a sharp earnings downturn.
• FAST Graphs analysis highlights valuation risk, intrinsic value, and recovery potential.
• Among the five, Elevance emerges as the best candidate, balancing growth, dividends, and resilience.
• Centene offers the highest upside but with higher risk.
• UnitedHealth remains overvalued despite quality.
• Molina is speculative, while Humana looks unattractive.

Chuck concludes that while the industry has been “sick,” signs of recovery are emerging. Investors should carefully balance risk and reward, focusing on fundamentals, valuation, and long-term earnings power rather than short-term price movements.

Video Length: 00:21:18

More By This Author:

Why Buying Overvalued Stocks Is Risky: Invest Smart, Buy Low Instead
5 Small & Mid Cap Growth Stocks At A Reasonable Price
Value Investing In Regional Banks: 6 Dividend Champions