UnitedHealth Group Inc (NYSE:UNH) remains the leader in the health insurance industry by virtue of its vast scale and tremendously diversified operations.
Indeed, UnitedHealth Group has always performed better than the others in the industry and remains an investor favorite.
This is also evident by its share price gain of 28.82% which has outperformed the Zacks categorized Health Maintenance Organization (HMO) industry gain of 21% over the past year.
The stock carries a Zacks Rank #2 (Buy) and below we point out some of the reasons why the stock seems attractive attractive pick in the sector which is undergoing a massive regulatory and policy overhaul. You can see the complete list of today’s Zacks #1 Rank stocks here.
UNH’s Earnings Beat, Estimates Go Up
The company has a history of beating earnings estimates as evident by positive surprises in 25 out of the last 28 reported quarters. It met the estimates in the other three. The average positive surprise for the last four quarters is 3.8%. The company has also witnessed an increase in the Zacks Consensus Estimate for 2017, albeit slight over the past 90 days
UnitedHealth Signals Strong Guidance for 2017
The company’s 2017 guidance calls for adjusted EPS of $9.30–$9.60, which translates into year-over-year growth of 17.4% (at the mid-point) and revenues of $197–$199 billion, up 7.6% year over year.
Consider UnitedHealth’s Strong Fundamentals
The company stands out in the industry by expanding and investing heavily in its health services business called Optum, which is less regulated then the business of selling insurance under its health benefits segment UnitedHealthcare.
The company’s focus on beefing up Optum intensified after Obamacare ushered in a number of restrictions on selling health insurance which were suppressing growth at UnitedHealthcare. This diversification by the company has been well received by investors as it will enable it to stay ahead of the stiff competition in the health insurance business.
Over the years, this segment has grown through a number of acquisitions – both big and small – and is further branching out into different sub-segments – OptumRx, OptumHealth, OptumInsight. The company has proposed to acquire Surgical care will expand the unit’s capabilities in outpatient surgical procedures.
Most of the players in the industry like Aetna Inc (NYSE:AET), Anthem Inc (NYSE:ANTM), Molina Healthcare, Inc. (NYSE:MOH) and others along with UnitedHealth suffered from losses on the public exchange business.
Among these players, UnitedHealth was the first to take action in this regard by exiting from most of the exchanges it was present in, thus reducing its exposure to the underperforming business to almost nil.
In this way, the insurer shielded itself from the losses incurred by this business.
Other Metrics That Point to UNH Stock Strength
The company’s growth rate compared favorably with the industry. While for the past five years the industry has grown at a rate of 4.8%, UnitedHealth has clocked growth of 11.3%
The company’s PE ratio of 17.66 is lower than the industry PE ratio of 28.5. Its PEG ratio of 1.33 is significantly lower than the industry’s PEG ratio of 2.02. This shows that the stock remainns undervalued.
The company’s net profit margin of 3.92% is superior to the industry’s net profit margin of 1.65%.
Also, UnitedHealth’s return on equity of 21.2% far exceeds the industry’s return on equity of 9.08%.
The company’s leverage ratio remains low at 0.68 compared with industry leverage of 36.39.
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