By Josh Nathan-Kazis

Everyone seems to have the flu this week: Your uncle, the guy wheezing in the corner of the subway car, and your colleague sneezing at the water cooler.

Through the middle of January, this was shaping up to be a ho-hum influenza season. Now it's the worst winter for flu in years, and no one knows exactly why.

The sudden flip to a really bad flu year could scramble earnings expectations for testing companies, retail pharmacy chains, and for health insurers, as investors tweak estimates to reflect a surge in respiratory infections.

The surge in cases is likely bad news for health insurers, but may offer a bit of a bump to retail pharmacy chains, consumer health companies, and diagnostic testing companies.

Don't expect huge stock reactions, however. After Covid-19 revenue explosions sent shares of testing companies and vaccine makers through the roof in 2020 and 2021, the quick collapse that followed burned plenty of investors.

"Folks, postpandemic, are more so looking though these one-time" outbreaks, says Andrew Brackmann, an analyst covering diagnostics manufacturers at William Blair. "You don't get as much credit on the upside. You do on the downside."

Flu seasons have been notably mild since the Covid-19 pandemic, but the current season is bad even for a prepandemic year. Up through late January and even early February, it seemed like flu rates had already peaked at a relatively low level. Now they're through the roof.

"The companies that reported [fourth quarter earnings] earlier in the cycle, late January, they were still assuming it was going to be more like a normal flu season," Brackmann says. "What you're going to start to hear throughout this quarter is 'Hey, this is not a normal season anymore.'"

Late Wednesday, when the diagnostic testing company QuidelOrtho reported its fourth quarter results, its executives said they were seeing a big rise in flu cases. "We got off to a late start, but now we've seen this peak," the company's CEO, Brian Blaser, said on an investor call Wednesday. "The question is how quickly the peak will come down."

Still, Blaser said that the 2025 guidance the company announced Wednesday assumes a respiratory testing market that is "kind of the average."

The stock was up 3.6% Thursday morning.

Data from the Centers for Disease Control and Prevention suggests that it isn't just rates of flu that are high, but also other respiratory infections. In the week ending Feb. 1, 7.8% of patient visits to healthcare providers were due to respiratory illnesses, the highest reading for that metric since late 2009.

Flu activity is very high in virtually every part of the country, according to the CDC, and the rate of hospitalizations due to flu is higher than in any year since the winter of 2017 and 2018, when a technical problem with some vaccines contributed to a notably severe flu season.

Scientists aren't sure why flu cases are spiking this year. "The likelihood is that it's something very unique about the viruses that are transmitting right now, and the immunity in the population," says Seema Lakdawala, a professor of microbiology and immunology at the Emory University School of Medicine who studies influenza viruses.

One hypothesis, says Stephen Morse, a professor of epidemiology at the Mailman School of Public Health at Columbia University, is that there is now less immunity to influenza across the population due to lockdowns and other measures taken to reduce exposure in recent years. Another is that vaccination levels have been falling in recent years, and uptake this year seems to be low.

"I don't know if this is sufficient to explain it," Morse wrote in an email to Barron's. "As with Covid, people congregating indoors is often a major factor as well, and people may well be doing this (and traveling more) than last year."

The increase in seasonal flu cases is so far unrelated to the avian influenza H5N1 outbreak in U.S. dairy herds and poultry flocks that has infected a small number of people in North America. The CDC says it has seen no human-to-human transmission of H5N1 in the U.S.

The high levels of seasonal flu do, however, increase the risk that a person with H5N1 may also get seasonal flu, giving the viruses a chance to combine into something new that could theoretically set off a pandemic. "We should really be concerned about that," Lakdawala. "We should be doing everything we can to limit the amount of seasonal burden of influenza."

The CDC says that at least 24 million people have been sick with the flu in the U.S. so far this year, and 13,000 people have died.

The explosion of cases in the past few weeks could have implications for retail pharmacy owners like Walgreens Boots Alliance and CVS Health, which benefit from move foot traffic in their stores, and for consumer health companies like Kenvue and Haleon, which sells Theraflu and Advil.

It could boost earnings for testing companies like Danaher and QuidelOrtho, which sell flu tests to doctors and hospitals.

Danaher, which owns the diagnostic testing company Cepheid, said in late January that it expects respiratory testing revenue to drop to $1.7 billion in 2025 from around $2 billion in 2024. That was before the recent surge in respiratory infections set in, and as such is likely an underestimate.

"I'd expect there to be some upside to that," Brackmann said, which could have some positive impact on 2025 profits.

For hospital companies, lots of flu cases are generally positive for results. Hospital company HCA Healthcare called out a mild respiratory season as having weighed on volume in the fourth quarter of last year when it reported results in late January. That could change for the first quarter of this year.

For the managed care companies, meanwhile, it isn't so good. "We believe the biggest risk of an elevated flu season is for the managed care companies, who may have not underwritten for elevated utilization due to the flu," Mizuho analyst Ann Hynes wrote Monday.

Healthcare stocks have rallied so far this year, as investors have sought to shift out of the tech sector and into safer waters. The Health Care Select Sector SPDR Fund, which tracks healthcare stocks in the S&P 500, is up roughly 6% this year, while the broader S&P 500 is up around 3%.

Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

February 13, 2025 10:44 ET (15:44 GMT)

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