UnitedHealth Group Inc. (NYSE:UNH) is the nation’s No. 1 health insurer in an industry that’s been thriving of late.
The aging Baby Boomer generation has reached that point where they will need more coverage for decades to come and the Affordable Care Act has and will add more Americans into the healthcare mix as the legislation mandates coverage.
Demographics and legislation paint the picture of an industry with substantial growth potential, but does that mean the biggest player in this space is a buy?
Despite UNH stock being up 47% in the last year, management at UnitedHealth Group isn’t resting on its laurels. In fact, UNH is being proactive and strategically expanding. Now the company’s set to report Q1 earnings on Thursday morning, and you can expect to hear continued good things.
UNH Stock Earnings Preview
Analysts expect UnitedHealth Group to post first-quarter earnings of $1.34 a share, a 22% increase from last year. Revenue is expected to rise 9% to $34.6 billion.
These are positive numbers and most analysts are bullish on UNH stock. As Hannah Ishmael reported for Bidness ETC:
“Analysts polled by Bloomberg indicate that the majority of the sell-side firms are bullish on UnitedHealth stock. Out of the 25 analysts who cover the stock, 18 rate it a ‘Buy’ and six recommend a ‘Hold’. The 12-month consensus target price stands at $131.30.”
There remains the potential for growth as UNH stock was trading at midday today at $117.
However, these expectations don’t explain the latest boosting of price targets over the last past few weeks.
Credit Suisse substantially raised its price target on UNH stock from $120 to $135 on March 31. And in a report released this week, Jeffries & Co. boosted its price target from $106 to $141. Jeffries also estimated earnings at $5.70 per share for 2015 and $6.20 for next year.
The upgrades were due to the acquisition of a company in what should be a game-changer for UnitedHealth Group.
How the Catamaran Deal Helps UNH Stock
On March 30, the Pharmacy Benefit Management arm of UnitedHealth — OptumRx — grew by leaps and bounds as the healthcare provider announced a deal to buy Catamaran Corp (USA) (NASDAQ:CTRX) for $12.8 billion. The deal is expected to be completed by the end of the year.
Here’s why this is a big deal.
Pharmacy benefit managers — or PBMs — run prescription drug plans for its clients that are made up of corporations and health insurers. It is their job to negotiate prices with drug makers and pharmacies, process mail-order prescriptions, and attempt to monitor patients to see if they are taking drugs when and as prescribed — this keeps costs down.
UNH’s deal to buy Catamaran will unite the third- and fourth-largest PBMs in the country. And in the PBM space, the bigger you are, the more power you have to negotiate better deals for drugs.
According to Trefis, the combined efforts will handle nearly 1 billion prescriptions annually and give it a 20% market share in the industry.
On Thursday I will be interested in hearing of what management thinks the deal will mean for UNH’s future than I am in the company’s first-quarter numbers. This past quarter was business as usual. However, this deal will be a game-changer.
As of this writing, Jason Jenkins did not hold a position in any of the aforementioned securities.
