Estimates for UnitedHealth Group Incorporated UNH have been revised upward over the past seven days, reflecting analysts' optimism on the stock. The stock has seen the Zacks Consensus Estimate for 2019 earnings move 0.1 % north over the same time frame.
Shares of this Zacks Rank #2 (Buy) company have surged nearly 35.5% in the past year, underperforming the industry’s growth of 36.8%.
It also carries a favorable Value Style Score of B. Our research shows that stocks with an impressive Value Style Score of A or B when combined with a bullish Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best opportunities in the value investment space.
Now, let’s focus on some important factors that make the company an investor favorite.
Positive Earnings Surprise History: The company boasts an encouraging earnings surprise history with an average trailing four-quarter beat of 3.71%. This definitely reflects the company’s operational excellence.
Consistent Top-Line Growth: The company has witnessed strong top-line growth over the past several years, which registered a CAGR of 12.7% from 2006 to 2017. The momentum even continued into the first half of 2018 with the metric rising 13% year over year. Strong segmental performances, attractive core business, renewed agreements and an expansion of service offerings are likely to drive its revenues going forward.
Increasing Membership Enrollment: UnitedHealth’s membership in the public and senior business has been consistently growing over the past many years with the trend continuing into the first half of 2018. Medicare and Medicaid business of the company will further boost its membership strength moving ahead. In Medicare business, a combination of premium and benefit stability, rising stars rating performance and an improved service plus clinical performance would together lead to record retention rates, which in turn, will surely drive the number of members.
Raised 2018 Guidance: UnitedHealth revised its 2018 financial outlook during the second quarter. It now expects 2018 net earnings of $11.80-$12.05, up from the prior projection of 11.70-$11.95 per share. Adjusted net earnings have also been raised from $12.40-$12.65 per share to $12.50-$12.75. Cash flows from operations are now expected to be around $15.5 billion, indicating the upper end of the past forecast. This lifted view instills investors’ confidence in the stock.
International Business: The company is aggressively expanding its international business owing to increasing regulations in the United States. Its major transaction to acquire Brazil-based Amil Participações S.A attests this fact. Other such buyouts of the company include Dubai-based Al Sagr National Insurance Co., which will allow it to extend its presence in the Middle East. Its acquisition of Empresas Banmédica would likely boost its footprint in South America. The company is expected to consistently make efforts for burgeoning its global business base going forward.
Solid Performance by Optum Segment: UnitedHealth’s health service business, branded as Optum, is the company’s core business and is becoming extremely valuable to its portfolio. The segment is driven by its pharmacy care services, care delivery, technology, government services and international services as well. Management is considering this segmental expansion to contribute around 35-40% of operating income over the long term. From 2014 to 2017, the company compounded revenues at 24% per year and operating earnings at 26% a year. Revenues and operating earnings further grew 10% and 25%, respectively, in the first six months of this year. Buyouts, use of advanced technology, market leading health analytics, modern care delivery and data-driven population health approaches lend Optum a long runway for growth.
Growth Projections: The Zacks Consensus Estimate for current-year earnings per share is pegged at $12.72, representing a year-over-year increase of 26.3% on 11.7% higher revenues of $222.8 billion.
For 2019, the Zacks Consensus Estimate for earnings per share stands at $14.45 on $243.0 billion revenues, translating into a respective 13.5% and 8.1% year-over-year increase.
Further, the company’s long-term (five years) estimated EPS growth rate of 13.2%, greater than the industry’s earnings growth rate of 12.9%, promises rewards for investors.
Other Stocks to Consider
Investors interested in the Medical-HMO industry can also check out some other top-ranked stocks like Molina Healthcare, Inc MOH, Triple-S Management Corporation GTS and Anthem, Inc. ANTM.
Molina offers Medicaid-related solutions to meet the health care needs of low-income families and individuals. It sports a Zacks Rank #1 (Strong Buy). In the past four quarters, the company delivered a whopping average past four-quarter beat of 164.17%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Triple-S Management provides a portfolio of managed care and related products in the commercial, Medicare and Medicaid markets in Puerto Rico, the United States. It carries a Zacks Rank of 2 and came up with an average four-quarter positive surprise of 187.9%.
Anthem operates as a health benefits company in the United States. A Zacks #2 Ranked player, the company managed to pull off an average trailing four-quarter earnings surprise of 6.65%.
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