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Supreme Court’s Obamacare Decision Hasn’t Been Priced Into Healthcare Stocks Yet

Supreme Court’s Obamacare Decision Hasn’t Been Priced Into Healthcare Stocks Yet

By Agustino Fontevecchia, Forbes Staff

The Supreme Court is expected to rule on the constitutionality of the Affordable Care Act on Thursday. While some have highlighted increased options activity or interest in exposed ETFs, analysts with S&P Capital IQ suggest markets haven’t priced in a decision, as it relates to major healthcare providers and insurers. Looking at CDS data and earnings estimates, they conclude that the markets’ perception of credit quality and earnings potential remain unchanged.

Markets weren’t too pleased when President Obama signed the Affordable Care Act into law in 2010. According to Barclays, both business confidence and labor markets deteriorated in the wake of the decision.

SCOTUS is expected to throw out the individual mandate, which requires individuals to buy health care insurance, along with other provisions that make health care more expensive, according to the Wall Street Journal. On the face of it, this should be positive for stocks in the sector, and, according to the Journal, markets have already begun to price this in. In a piece that came out on Wednesday, they argued that increased call option volume for Aetna, UnitedHealth Group, and WellPoint suggested market perception was bullish for those stocks.

Data analyzed by S&P Capital IQ paints a different story. Since the beginning of the year, a major CDS index in the healthcare sector has behaved in line with broader market CDS indexes, “tightening since the start of 2012 until the third week in March, before signs of a slowing U.S. economy started to push CDS spreads wider.” Credit default swaps are derivative contracts that offer protection if a company defaults on its debt, thus becoming more expensive when firms are deemed riskier, and cheaper if they’re safer.

Read more: http://www.forbes.com/sites/afontevecchia/2012/06/27/supreme-courts-obamacare-decision-hasnt-been-priced-into-healthcare-stocks-yet/

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