On Jan 26, shares of UnitedHealth Group Inc. UNH scaled an all-time new 52-week high of $124.11. The upside in the stock was driven by the recent Supreme Court ruling.
UnitedHealth’s shares soared 52% over the past one year, making a significant difference from the S&P 500’s rise of only 7% during the same time frame. The average volume of shares traded during the day was approximately 16,358K.
UnitedHealth's stock saw positive reaction to the Supreme Court’s 6-3 decision that upheld the subsidies given to those who enrolled via the federal exchanges. The case referred to as SCOTUS pointed to the text of the law which stated that only those individuals insured under state-established exchanges would be eligible for federal subsidies. However, customers who enrolled via 34 states that did not set up their own exchanges also got the subsidies. It was the legibility of these subsidies that the case challenged.
The ruling established that the subsidies remain in place. This decision is a net positive for UnitedHealth as well as its peers who would have faced an outflux of members if the subsidies were to be scrapped. The removal of the subsidies would have caused a "death spiral" as healthier people then would have lesser incentive to participate in the market. Keeping the subsidies intact will make insurance more affordable for all groups of people, including the healthy and the sick. This combination will improve the customer profile of health insurers, enabling them to spread their risks to a larger pool of members thus reducing their claim cost.
The favorable outcome now allows UnitedHealth to enroll more members via the 23 exchanges it will be operating this year against only four in 2014. The expansion of the public exchange business along with a favorable view on the subsidies case presents a strong growth point for the company.
Investors have always been attracted to the UnitedHealth stock given its top position in the industry. But recent developments such as an agreement to acquire pharmacy benefit management company Catamaran, dividend hike as well as a proposal to acquire Aetna Inc. AET has increased investors’ liking toward the stock.
UnitedHealth carries a Zacks Rank #2 (Buy). Other stocks worth considering are Centene Corp. CNC and Health Net, Inc. HNT. While Centene carries a Zacks Rank # 1 (Strong Buy), Health Net holds the same rank as UnitedHealth.
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