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Key points
- JP Morgan downgraded NIB to underweight today
- The broker slashed its price target by 12% to $6.10
- The firm is cautious on the Australian health insurance sector over the medium to long-term
- Analysts at the firm like Medibank as a better alternative
- In the last 12 months the NIB share price has climbed more than 11%
Shares in private health insurer NIB Holdings Limited (ASX: NHF) are plunging more than 7% from the open today and now trade at $6.16 apiece.
Investors are selling the NIB share price today following a broker downgrade from investment bank JP Morgan.
In a note to clients, the broker deconstructs why NIB has fallen out of the limelight, and why it urges its clients to sell the insurer. Let's take a look.
Why's the NIB share price plunging today?
In the absence of any market-sensitive information from the company's camp today, it could be that JP Morgan slashed its price target for NIB by 12% to $6.10.
In doing so, it also assigned an underweight recommendation on the stock, downgrading the insurer from a previous neutral rating.
The broker reckons that insures such as NIB and Medibank Private Ltd (ASX: MPL) have benefitted tremendously from a slowdown in COVID-19 health claims in the short term.
However, it also notes that NIB has made promises that policyholders will see benefits returned to them, which poses a risk to long-term profits.
The broker isn't so rosy on the outlook of the Australian health insurance sector over the medium to long-term, noting widening capital requirements, lower rate increases and headwinds to profits in some business lines.
Specifically, the investment bank alludes to NIB's Australian Residents Health Insurance unit that appears to be struggling based on the numbers.
JP Morgan reckons that NIB will overreach its margin targets in this segment once again, especially due to its stance on retaining COVID-19 benefits for shareholders.
Analysts at the firm like Medibank as a better alternative, although the team also downgraded its view on NIB's rival to underweight as well today.
Shares have faltered after the broker released its scathing cross-examination on NIB, and are now trading at their lowest level in almost 6 months.
As seen on the chart below, both shares have tracked each other fairly closely over the last 12 months, with the exception of NIB's breakout-correction phase in August last year.
Hence, it appears we might be at a crossroads between the pair and the next course of direction in their share prices.
NIB share price snapshot
In the last 12 months, the NIB share price has climbed more than 11%. Since January 1 this year however, it has slipped well into the red and is 12% down.
Not only that, but in the last week of trading, shares have fallen another 6% amid a market-wide selloff that's been in situ since December last year.
