US business activity cools in April

US business activity continued to increase in April, but the rate of expansion slowed amid signs of weaker demand. US PMI Composite Output Index dropped to 50.9 in April from 52.1 in March, lower than the expectation of 52.0. Slower gains in activities were recorded across both the manufacturing and services sectors, with rates of growth easing to three and five-month lows respectively. US Manufacturing PMI posted a 49.9 in April, lower than the previous value of 51.9 and the expectation of 52.0. Services PMI stood at 50.9, compared to the previous value of 51.7 and the expectation of 52.0. The service sector PMI has been in the expansion territory for 15 consecutive months.

Output growth cooled in line with demand weakness as new orders decreased for the first time in six months. Input prices continued to rise sharply in April, although the pace of inflation eased from the six-month high seen in March. In line with the picture for input costs, output prices increased at a solid but slower rate during April, the pace of inflation cooling again having accelerated to a ten-month high in March. Signs of demand weakness impacted hiring plans at companies in the US at the start of the second quarter. As a result, employment decreased for the first time since June 2020. The overall reduction in workforce numbers was centered on services, where employment decreased solidly and to the largest extent since mid-2020. In terms of US stock market, the S&P 500 is still lacking upward momentum, and it is expected to fluctuate between 4,900-5,300 points.

In terms of industry, after the pandemic, the public attention to health has surged, promoting a significant increase in insurance awareness and demand, which is expected to benefit the related companies.

UnitedHealth Group (UNH.US) revenues in 1Q24 grew by 8.6% YoY to US$99.8 billion, led by a strong expansion in the number of people served at Optum and UnitedHealthcare. Operation earnings amounted to US$7.9 billion, down 2.5% YoY, due to a US$872 million effect of a cyberattack.

In terms of the business segment, UnitedHealthcare’s revenues amounted to US$75.4 billion, up 7% YoY. UnitedHealthcare total domestic consumers served grew by nearly 2 million in 1Q24, led by commercial and seniors. Optum’s revenues stood at US$61 billion, up 13% YoY, driven by strong growth in Optum Health and Optum Rx. Among them, Optum Health revenue increased by 16% YoY and Optum Rx revenue climbed by 12%. The company was still optimistic about its outlook with FY24 net earnings guidance to US$17.60 to US$18.20 per share to reflect the Brazil sale and the estimated direct response costs of the cyberattack. The company maintained its adjusted net earnings outlook of US$27.50 to US$28.00 per share. It is recommended to buy at US$480.0, target at US$560.0, and stop loss at US$461.0.

Cigna Group (CI.US)’s total revenues in FY23 amounted to US$195.3 billion, up 8% YoY. Net income reached US$5.2 billion, down 23% YoY. In terms of business segment, Evernorth Health Services adjusted revenues increased by 9% YoY to US$153.5 billion, led by specialty pharmacy and care solutions. In Cigna Healthcare, the company drove revenue and customer growth through disciplined pricing and medical cost management. Cigna Healthcare adjusted revenues grew by 14% YoY to US$ 51 billion.
As of December 31, 2023, total pharmacy customers increased by 5% YoY to 98.6 million. Total medical customers grew by 10% YoY to 19.8 million, primarily driven by growth in U.S. Healthcare, including fee-based customers as well as Individual and Family Plans and Medicare Advantage customers. The company continued to expect strong growth in Evernorth and Cigna Healthcare and expected FY24 consolidated adjusted revenues of at least US$235 billion, and FY24 consolidated adjusted income from operations to be at least US$8.0 billion. It is recommended to buy at US$344.0, target at US$401.0, and stop loss at US$330.0.