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Article | Executive Pay Memo North America

Economic outlook for health care sector remains favorable despite market volatility

Executive Compensation
COVID 19 Coronavirus

By Mitchell Bardolf and Jang Han | April 14, 2020

The health care sector is deep in the heat of battle against COVID-19 (coronavirus), and the time needed to heal economic battle scars is just beginning to be examined.

COVID-19’s global spread and disruption is putting health care sector companies on the front lines: treating those directly impacted by the disease, managing new logistical challenges for products and services, and mobilizing research and development efforts to find one or more potential vaccines or therapeutics. These important, immediate initiatives have companies juggling current, pressing demands with the need to remain focused on critical long-term strategic goals.

We will not know the full economic impact of COVID-19 for some time, and hard economic data to help us understand how deep or protracted the business downswing might be are limited. For now, we start with the data source with the broadest near-term implication: the stock market. March was both brutal and exceptionally volatile. Figure 1 tracks year-to-date total shareholder returns across the health care sector through March 27, highlighting variations by industries within the sector.

While all industries within the sector are down significantly, health care providers and services and health care equipment and supplies have been hardest hit by COVID-19. Although the situation changes daily, these industries are likely struggling to keep up with demand and near-term uncertainty. Investors, however, may be more hopeful that contributions from biopharma and health care equipment and supplies companies will deliver more long-term solutions despite the immediate impact on supply chains and traditional sales strategies.

Figure 1. 2020 total shareholder return for the health care sector through March 27, 2020
Figure 1. 2020 total shareholder return for the health care sector through March 27, 2020

Source: S&P Capital IQ’s database. 2020 YTD through 3/27/2020.

The unprecedented crisis has deeply affected results and turned investment analysts’ 2020 expectations for a stronger year than 2019 on their head, with current expectations eroding relative to January’s outlook. And it’s quite reasonable to anticipate that the estimates of declines we’ve seen through March 27 (Figure 2) may continue to drop in the weeks ahead. That said, the outlook for the health care sector generally remains more favorable than the broader S&P 1500, which we’ve recently reported on.

Sector/industry YTD change in estimated 2020 EBIT
Health care (sector) – 5%
Health care equipment and supplies – 4%
Health care providers and services – 4%
Pharmaceuticals, biotechnology and life sciences – 5%

Figure 2. Year-to-date change in estimated 2020 earnings before interest and taxes (EBIT), as of March 27

No one knows the depth of the economic impact, how long we will spend at the trough or how quickly we can recover. There is a real potential for a recession, but the fiscal stimulus infused through the Coronavirus Aid, Relief, and Economic Security (CARES) Act, coupled with Federal Reserve action, should help. We are watching these quickly changing events closely and will provide timely and impactful updates in the weeks and months ahead.

Discover how U.S. health care providers are managing COVID-19’s impact on staffing and compensation. View the findings from our series of flash surveys for insights into this changing situation.


Director, Executive Compensation (Arlington)

Associate, Global Executive Compensation Analysis Team (Arlington)

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