Why is the NIB (ASX:NHF) share price sliding 7% today?

JP Morgan is now bearish on NIB and reckons further downside is imminent.

| More on:
Downward red arrow with business man sliding down it signifying falling asx share price.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

TradingView Chart

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.

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended NIB Holdings Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Broker Notes

A miner stands in front oh an excavator at a mine site
Broker Notes

Broker says buy the dip on ASX 200 uranium share with 69% upside

Shaw and Partners says this ASX uranium stock is trading at an attractive price point right now.

Read more »

A young man punches the air in delight as he reacts to great news on his mobile phone.
Broker Notes

Bell Potter says these ASX stocks are top buys

Let's see why the broker is feeling so bullish on these names.

Read more »

A man holding a cup of coffee puts his thumb up and smiles while at laptop.
Broker Notes

Buy this ASX All Ords stock for huge returns and a great dividend yield

Bell Potter thinks this buy-rated stock could deliver the goods for investors over the next 12 months.

Read more »

Broker written in white with a man drawing a yellow underline.
Broker Notes

Leading brokers name 3 ASX shares to buy today

Here's why brokers believe that now could be the time to snap up these stocks.

Read more »

A man clenches his fists in excitement as gold coins fall from the sky.
Broker Notes

Top broker says these ASX stocks can rise 35% in a year

Let's see why Bell Potter thinks these shares could rise strongly over the next 12 months.

Read more »

A man has a surprised and relieved expression on his face. as he raises his hands up to his face in response to the high fluctuations in the Galileo share price today
Broker Notes

These ASX shares could rise 20% to 50%

Analysts are tipping these shares to rise strongly over the next 12 months.

Read more »

A female ASX investor looks through a magnifying glass that enlarges her eye and holds her hand to her face with her mouth open as if looking at something of great interest or surprise.
Broker Notes

Top brokers name 3 ASX shares to buy next week

Brokers gave buy ratings to these ASX shares last week. Why are they bullish?

Read more »

Doctor doing a telemedicine using laptop at a medical clinic
Healthcare Shares

3 small-cap ASX healthcare shares 'with strong prospects'

Fund manager IML discusses why these 3 ASX healthcare shares are likely to rise in value.

Read more »