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Why NIB Holdings Limited (ASX:NHF) share price is the best performing stock on the S&P/ASX 200

The NIB Holdings Limited (ASX: NHF) share price surged ahead this morning after the private health insurer issued a profit upgrade at its annual general meeting.

The stock rallied 7.7% to a three-week high of $5.61 and is the best performer on the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index with the Lynas Corporation Ltd (ASX: LYC) share price and the AMP Limited (ASX: AMP) share price following closely behind at the time of writing.

Ironically, it’s low wages growth that may be fuelling the profit upgrade with NIB Holdings upping its FY19 group underlying operating profit guidance to be at least $190 million.

That’s $10 million ahead of management’s previous guidance and its managing director Mark Fitzgibbon is attributing the good news to the prolonged benign claims environment, particularly among Australian resident customers.

Mr Fitzgibbon can’t exactly explain the record low levels of insurance claims, he is pretty sure it’s something to do with low wages growth.

Australians are seeking less medical treatment as many households are feeling the pressure from the rising cost of living, including higher petrol costs.

What’s good for the goose is good for the gander and Medibank Private Ltd’s (ASX: MPL) share price is also running ahead today with a 2.6% jump to $2.78.

The outperformance of both shares will be a relief to shareholders as the NIB share price is down 11% over the past year while the Medibank share price is 10% lower.

In contrast, the ASX 200 benchmark has shed less than 2% of its value over the same period.

The industry has been feeling the heat from Labor leader Bill Shorten’s promise to cap premium increases at 2% if the opposition party gets into government next year.

NIB and Medibank have also been pushing back against private hospitals like Ramsay Health Care Limited Fully Paid Ord. Shrs (ASX: RHC) to rein in costs relating to insurance reimbursements.

I don’t think NIB’s profit update will lead to significant consensus upgrades though. The sector looks to be close to fair value too although I prefer NIB to Medibank as analysts believe Medibank’s bottom line will shrink though to FY20.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has recommended NIB Holdings Limited and Ramsay Health Care Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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