First Look: United Health

Shares of United Health (UNH) have been on a tear the past year, jumping from around $80 to $119. That’s a 50% move when profit growth only averaged 16% the past four qtrs. Now UNH’s P/E is 19 — up from 11 in September 2012 — which is high considering the stock’s estimated long-term profit growth rate is just 12%. The pays a dividend, the yield is currently 1.65%, and management buys back stock. United Health is also an acquirer, recently grabbing Catamaran, a pharmacy benefit manager (PBM), which I owned for many years. The del is expected to close thsi month.

Ten Year Chart

A decade ago the health insurers weren’t good investments. Then the stocks crashed during the bear market like almost all others did. But in retrospect this proved to be a good time to invest in UNH, as the shares were around $25 for more than a year.

I’m surprised at the recent surge in UNH’s stock price. Profit growth was just 4% in 2013 and 2014, and is estimated to be 11% this year, but this figure is rising. The company has beaten the street the past four qtrs, but analysts estimate profit growth to be flat this qtr and up just 3% 2QtrsOut. I think the fact UNH has been beating the street has helped the stock move higher.

Profit History

To be frank, this isn’t my first look at United Health, I owned the stock around decade ago, and it was a good investment. I should have bought back in 2011-2012 when the P/E was just 10, but profits really weren’t growing fast (and I was focused on rapid profit growth at the time).

I feel UNH’s current P/E of 19 is too high. Sure the stock has been moving higher — and the trend is your friend in this market — but I feel more comfortable buying in if UNH was selling for 16x earnings.

Sharek’s Take

United Health is performing admirably right now, but in my eyes the stock’s gotten ahead of itself. I feel the stock could stay around this price for the next year. I’ll keep UNH on the radar for my Conservative Growth Portfolio, and will look to get in around $100.