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United Health Appeals to Both Growth and Value Funds

Stock (Symbol)

United Health (UNH)

Stock Price

$134

Sector
Healthcare
Data is as of
April 21, 2016
Expected to Report
Jul 19
Company Description
unitedhealth_logoUnitedHealth Group Incorporated is a health and well-being company. The Company’s business platforms include UnitedHealthcare and Optum. UnitedHealthcare provides health care benefits to various customers and markets. Optum is a health services business serving the health care marketplace, including payers, care providers, employers, Governments, life sciences companies and consumers. The Company’s business platforms have four segments: UnitedHealthcare, OptumHealth, OptumInsight and OptumRx. OptumHealth is a health and wellness business serving the physical, emotional and financial needs of individuals. OptumInsight provides technology, operational and consulting services to participants in the health care industry. OptumRx is a pharmacy benefit manager. Purchased Catamaran 3/30/15. Source: Thomson Financial
Sharek’s Take
David SharekUnitedHealth (UNH) broke out this week after posting better than expected profits. The company earned $1.81 in the qtr, a 17% increase from last year, and beat the street by 9 cents. Revenue at the nation’s largest health insurer grew 25%, with UnitedHealthcare’s revenues climbing 10% and Optum’s 54%. Optum provides health services such as pharmacy benefit management, behavioral health services and data analytics. On March 30th 2015 it acquired Catamaran, a great pharmacy benefit manager I owned for many years. The company recently said it loses money on Obamacare, and is moving towards exiting the program. UNH is expected to grow profits 22% this year, yet sells for just 17x earnings. The stock is very safe and has clean annual reports. It’s expected to grow profits 15% long-term, pays out 30% of profits to pay a dividend of close to 2%, and management buys back stock in addition to acquiring other companies. United Health appeals to both growth and value mutual funds. UNH is part of the Conservative Growth Portfolio, and I will add it to the Growth Portfolio as well as the Aggressive Growth Portfolio today. My Fair Value is 19x earnings, which is $149 this year and $170 in 2017.
One Year Chart
UNH_2016_Q2Although profits are growing strong, growth rates have been fluctuating. Growth looks like this the next 4 qtrs: 9%, 21%, 46%, 13%. The 46% qtrr is due to easier comparisons (note the -15% qtrs 2QtrsAgo). 2016 profit estimates have climbed from $7.29 to $7.86 the past 2 qtrs. Although the stock has jumped recently, it still sells for just 17x earnings. The company has an estimated total return of 17% per year (15% Est LTG plus 2% dividend).
Fair Value
UNH_2016_Q2_PHThis stock has good upside considering the intangibles like safety, dividend growth, large market capitalization (this isn’t a flimsy small cap). My Fair Value is 19x earnings and earnings estimates might rise with UNH getting away from ObamaCare. DO NOTE UNH had profits fall during the last recession, and we should be aware of this heading into 2017.
Bottom Line
UNH_2016_Q2_10yrUnitedHealth has a lot of great qualities. This is a safe stock with clean financials. The company is expected to grow profits 22% this year yet sells for 17x earnings — and pays close to a 2% dividend. UNH appeals to both growth and value mutual funds, and I feel these shares are in demand right now. UnitedHealth ranks 4th of 34 stocks in the Conservative Growth Portfolio Power Rankings. I will add it to the Growth Portfolio and Aggressive Growth Portfolio where it will rank 7th and 14th in those respective Power Rankings.
Power Rankings
Growth Stock Portfolio

7 of 35

Aggressive Growth Portfolio

14 of 17

Conservative Stock Portfolio

4 of 34

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