UnitedHealth Is a Steady Investment for the Patient Investor

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UnitedHealth Stock - UnitedHealth Is a Steady Investment for the Patient Investor

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UnitedHealth Group (NYSE:UNH) erased around half of its losses from the December 2018–January 2019 period. Just as markets often get it wrong, it did so again with UNH stock when the company reported strong quarterly reports. With a proven management team, the company has a multiyear growth plan that embraces digitalization.

So as UnitedHealth continues to cut costs, operate more effectively and increase revenue, investors will get rewarded.

UnitedHealth’s Fourth-Quarter Results

UnitedHealth reported GAAP EPS of $3.10 as revenue grew 12.2% to $58.42 billion. Both figures easily beat the street estimates. Its quarterly results surpassed its own previous forecast, communicated at its Investor Conference outlook meeting. Optum’s earnings pulled out ahead because of overall medical cost controls.

Management successfully tackled expenses by executing on both structural costs and rate recovery. This sets up for an even better 2019 performance.

UNH stock is still around 10% below its 52-week high. And at a valuation of 15.6 times forward earnings, the stock may have more upside potential due to the outsized growth. Digitalization, or linking physical interactions to digital channels supported by proprietary data analytics, is already improving performance. The platform already has 22 million registered users that the company may engage with to deliver better service on health promotion and its related finances.

The improved interactions between patients and the company will continue to drive profit growth higher. For example, pharmacy care services reported a 98% retention rate. It won new business awards from health plans and employer plans, which already sets the company up for 2020 revenue growth.

It is looking more likely that the 15.6 times forward P/E is too low and does not reflect the company’s upside over the next few years.

Growth Drivers for UNH Stock

UnitedHealth’s two drivers for justifying a higher share price is simple. Lower total medical costs will continue and revenue will go up. Both are connected: by keeping people healthier and avoiding unnecessary hospital visits, costs go down. Commercial customers like this pattern and also join UNH.

Looking beyond into 2030, when 80 million people in the U.S. will have three or more chronic conditions, up from 30 million in 2015, it is imperative that UnitedHealth builds its comprehensive portfolio of care delivery services. On the back end, data analytics across all of Optum will help UNH reduce costs while delivering better care to its customers.

Risks for UnitedHealthcare

Ignoring the potential and actual risks in investing in UNH stock would give an incomplete picture to readers. Management expects a health insurance tax will come back in 2020. This will also increase healthcare costs by $20 billion for the 142 million Americans. At $500 in extra costs per family with small business coverage, the customer acquisition rate UNH enjoys today may slow because of this.

Despite the headwinds coming up, UnitedHealth will soon realize the benefits of winning a few large corporate deals. In 2020, it will focus more on health plans and then the large employer group.

Valuation

13 analysts on Wall Street cover UnitedHealth stock and on average, have a $308.90 price target. Every single analyst report in the last month is a “buy” call:

Analyst Firm Position Price Target Action Date
John Ransom Raymond James Buy $310.00 Reiterated 1 day ago
Kevin Fischbeck Merrill Lynch Buy $320.00 Reiterated 1 day ago
Michael Wiederhorn Oppenheimer Buy $305.00 Reiterated 2 days ago
Sarah James Piper Jaffray Buy Reiterated 2 days ago
Steven Halper Cantor Fitzgerald Buy $310.00 Reiterated 2 days ago
Ana Gupte Leerink Partners Buy $335.00 Reiterated 2 days ago
A.J. Rice Credit Suisse Buy $310.00 Reiterated 3 days ago
Steve Willoughby Cleveland Research Buy Reiterated 6 days ago
Steven Valiquette Barclays Buy $279.00 Reiterated 13 days ago
Zachary Sopcak Morgan Stanley Buy $315.00 Reiterated Last month
David Toung Argus Research Buy $295.00 Reiterated Last m

Source: tipranks

Investors may have a contrarian viewpoint against Wall Street reports but it is hard to get negative on UNH stock after its Q4 results.

Overall, UnitedHealth looks like a slow and steady climber whose stock will reward patient investors.

Related Investment

CVS Health Corporation (NYSE: CVS) is embracing the PBM model through its Express Scripts acquisition. The stock trades at 8.4 times forward P/E and is barely above 52-week lows. Investors are punishing the stock and pricing in the integration risks related to the acquisition.

As of this writing, Chris Lau did not hold a position in any of the aforementioned securities.

Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get actionable insight to achieve strong investment returns.


Article printed from InvestorPlace Media, https://investorplace.com/2019/01/unitedhealth-is-a-steady-investment-for-the-patient-investor/.

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