The Election and Our View on the Healthcare Industry
The two major U.S. election scenarios will not change our view of the healthcare industry's moats or valuations.
As of Nov. 8, two major U.S. election scenarios remain possible for the federal government, but we think a split government appears most likely, which would not change our view of the healthcare industry's moats or valuations.
Currently, major news outlets have projected that the Democrats will control the White House and the House of Representatives, but key elections in the Senate appear up for grabs. Based on recent vote counts, Republicans will probably control 50 seats and the Democratic caucus will probably control 48 seats, before Georgia holds run-off elections in January for the two remaining Senate seats. Given the November votes and Georgia's history as a Republican-leaning state, we would be surprised if a Republican does not win at least one of those seats, which would keep the Senate's control in Republican hands. In this most likely scenario, major healthcare policy reforms are unlikely through the legislative branch, which would largely maintain the status quo from a moat and valuation perspective in the healthcare industry.
Such a split scenario would increase the importance of the Supreme Court case scheduled to be heard on Nov. 10, though. If the judicial branch fully strikes down the Affordable Care Act, millions of Americans would lose health insurance through various ACA channels, including Medicaid expansion and the individual exchanges. This scenario could have negative effects for pockets of the healthcare industry, such as managed care companies with significant Medicaid and individual exchange exposure like Centene and hospitals like HCA and Tenet. If the ACA is struck down without an adequate replacement in this scenario, we see downside risks of 35% at Centene, 25% at Tenet, and 15% at HCA from our fair value estimates. The earnings power of other managed care providers could be mildly affected, as well, but based on our analysis, we do not think they would be material to valuation.
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