3 Likely Health Care Disruptors In 2018

After 2017 ended less eventfully than many expected for the health care industry, investors are now turning their attention to the business trends impacting the industry in the new year. In a new note, Bernstein analyst Lance Wilkes describes what he views as the three most important sector trends.

Disruption And Consolidation

The first important theme should come as no surprise to investors — Amazon.com, Inc. AMZN. In general, Wilkes said the pharmacy industry is ripe for online disruption, and investors know there’s one name that's synonymous with online disruption. Bernstein expects Amazon will make a big push into retail pharmacy starting in 2018, but will likely need to acquire or partner with a pharmacy benefit manager to effectively penetrate the market.

The second theme Wilkes said will be key in 2018 is vertical integration. It's the method and consolidation by which the health care industry manages costs in coming years, Wilkes said. This integration will also represent a shift in mentality from targeting volume to targeting value.

Washington Isn’t Done

The third theme Wilkes identified: politics. Investors are likely sick of hearing about the battles over health care in Washington, but unfortunately politics and health care will likely remain tangled for the time being, he said.

Bernstein projects that Democrats will likely gain control of at least one house of Congress in 2018, which Wilkes said will be bad news for drug supply chain stocks and managed care organizations.

Overall, Wilkes is optimistic about opportunities in the space.

“Health care services [including MCOs, PBMs and facilities] is one of the most-taxed industries and would be a big beneficiary of reductions in corporate tax rates."

Top Picks

Wilkes named the following stocks his top picks in the health care services space for this year:

• Anthem Inc ANTM, Outperform rating, $312 price target.
• Centene Corp CNC, Outperform rating, $137 price target.
• UnitedHealth Group Inc UNH, Outperform rating, $269 price target.

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