UnitedHealth Group Inc Looks Like It May Be Unstoppable

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UnitedHealth stock - UnitedHealth Group Inc Looks Like It May Be Unstoppable

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Up nearly 40% for the past 12 months heading into Tuesday morning’s earnings report, UnitedHealth Group Inc (NYSE:UNH) was understandably nervous. Following the release of the company’s fiscal first-quarter results, UnitedHealth stock holders remembered why they were willing to hold the stock through the news. The health insurer was all aces last quarter, and for good measure, upped its full-year profit outlook.

That doesn’t necessarily make UNH a buy just yet. Already up quite a bit for the past several years, Tuesday’s gain of more than 3% exacerbated the stock’s overbought condition. For investors who can be patient making an entry though, UnitedHealth stock is a name well worth adding to your watchlist if it’s not yet in your portfolio.

UnitedHealth Stock Earnings Recap

For the quarter ending in March, UnitedHealth turned $55.2 billion worth of revenue into a per-share profit of $3.04. Analysts were only modeling earnings of $2.92 per share and sales of $54.9 billion. Better yet, the top line was up 13.3% year-over-year, while operational earnings grew 28%.

The report was a sigh of relief for some owners of UnitedHealth stock who were concerned that a nasty flu season might sap profits.

More flu cases means more reimbursable doctor visits, and in some cases can mean more hospital stays that would be covered by the insurer, but it didn’t create the cost problem some had feared. In fact, the company’s medical coverage costs fell 82.4% for the comparable quarter a year earlier to 81.4% this time around.

UnitedHealth Sets the Tone

Against a backdrop of industry mergers — some consummated, others only rumored — intended to improve margins via vertical integrations, UnitedHealth Group is tacitly the name other players are trying to mimic. The company operates Medicare Advantage and Medicaid businesses on top of its mainstream health insurance arm, but is also an owner/operator of clinics, urgent care and surgery centers. It’s even a pharmacy benefits manager, with its Optum arm, which saw its profits soar 29% to $1.7 billion last quarter.

While it’s arguably the name in the business to beat, UnitedHealth Group’s success last quarter portends good news for owners of rivals like Anthem Inc (NYSE:ANTM), CIGNA Corporation (NYSE:CI) and Humana Inc (NYSE:HUM). Cantor Fitzgerald analyst Steven Halper said of the matter, “UnitedHealth certainly sets the tone for the group … investors tend to look at United as the bellwether for the other companies.”

Leerink analyst Ana Gupte went as far as to say UnitedHealth’s Q1 meant the whole industry “is poised to showcase solid fundamentals.”

Anthem is the next of those companies to post last quarters numbers, slated to unveil those results Wednesday. Humana will deliver its first quarter numbers on May 2, and CIGNA will share last quarter’s results the following day.

Looking Ahead for UnitedHealth Stock

In light of last quarter’s stellar results, UnitedHealth upped its 2018 profit guidance. It had been looking for earnings of between $12.30 and $12.60 per share of UnitedHealth stock. That range has been upped to between $12.40 and 12.65. Analysts were modeling an average of $12.54.

Perhaps even more exciting is the company’s outlook for its medical cost ratio to remain at 81.5% of revenue for the rest of the year, plus or minus 50 basis points.

There are still things that could conceivably go wrong for the company, bringing the long-standing rally from UnitedHealth stock to a screeching halt. More regulation, more competition and government-controlled pricing are just a few of them. But as Gupte observed, “None of that seems to be happening,” and certainly not from a lack of opportunity.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.


Article printed from InvestorPlace Media, https://investorplace.com/2018/04/unitedhealth-group-inc-looks-like-may-be-unstoppable/.

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