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UnitedHealth Could Go From $250 to $350 With Trump

Stock (Symbol)

UnitedHealth (UNH)

Stock Price

$252

Sector
Healthcare
Data is as of
November 3, 2019
Expected to Report
January 13
Company Description
UnitedHealth 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. UNH has 4 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), the nation’s top health insurer, could soar from around $250 to around $350 in two years if Donald Trump is reelected President of the United States in 2020. And right now he seems like a lock, as there is not a significant candidate to challenge him. 

And even if Trump isn’t reelected, its gonna be tough to find better healthcare option for Americans as UNH’s Optum division is making strides in keeping people healthier. UnitedHealth Group has two main divisions: UnitedHealthcare, which is health insurance and brings in 2/3rds of sales, and Optum. Last qtr, Optum, grew revenue 13% and profits 16% while the UnitedHealth insurance side grew revenue just 5% while profits increased just 4%. For those not familiar with Optum, it consists of:

  1. OptumHealth, a health and wellness business for the physical, emotional and financial needs of people. This division delivered an amazing 34% revenue growth last qtr.
  2. OptumInsight, which provides technology, operational and consulting services to participants in the health care industry. OptumInsight delivered 16% revenue growth last qtr, and increased its backlog 21%.
  3. OptumRx, a pharmacy benefit manager with relationships with Walgreen’s and CVS to make picking up prescriptions easy. This division had 6% revenue growth last qtr.

UNH is expecting 2019 to be its 11th consecutive years of declining impatient admissions per 1000 people. So the company is keeping healthcare costs down by helping make people healthier. So while Democratic candidates say they can improve healthcare, UnitedHealth is proving it. UNH stock is a quadruple-play with a high safety rating, a double-digit profit growth rate, a dividend, and a stock buyback plan. In 2018 management repurchased $4.5 billion in stock and raised the dividend by 20% to $3.60 a share. This year the dividend got upped another 20% to $4.32 annualized. UNH is part of the Conservative Growth Portfolio and Growth Portfolio. Analysts give the stock an Est. LTG of 13% per year, and the dividend yield is 2%, thus the total estimated annual return is 15% per year (do keep in mind this is only an estimate as stock’s do not provide consistent or dependable returns). UNH sells for a reasonable 15x 2020 profit estimates. I think it should sell for 19x earnings, thus my 2020 & 2021 Fair Values are $313 and $356 respectively. If Trump gets reelected, this stock could go from around $250 to around $350 in two years (in my opinion).

One Year Chart
UNH has delivered mid-teens profit growth the past two qtrs, but prior to that it beat the street, upped estimates, and delivered at least 23% profit growth for ten consecutive qtrs. This company has gone from being a twenty percent grower to a mid-teens grower. That often will pull down a stock’s P/E ratio. And in this case it did. The P/E used to be 18-20 and now it’s just 15. I feel UnitedHealth is certainly worthy of a higher P/E than it has now.

The Est. LTG of 13% is below the 15% I like in the Growth Portfolio, but the 2% yield makes it ok. Still, in my book stock growth often mirrors profit growth, so UNH isn’t a great growth stock. It is a great conservative stock. Stocks in my Conservative Growth Portfolio should have good safety and Est. LTGs + dividend yields of 10% or greater.

Earnings Table
Last qtr the company delivered 14% growth vs. analyst estimates of 10%. Sales grew just 7%, which is down from 9% 2QtrsAgo and 12% 3QtrsAgo.

Annual Profit Estimates for 2019 rose, but 2020 and 2021 estimates decreased. Stocks in uptrends often have increasing estimates. Stocks with declining annual estimates can’t be at the top of my Power Rankings.

Qtrly profit Estimates are for 14%, 9%, 10% and 10% profit growth the next 4 qtrs. Recall the company was expected to deliver 10% growth last qtr, and instead did 14%. If UNH can keep beating the street, the company might grow profits 15% on average for the next year.

Fair Value
My Fair Value P/E stays at 19 this qtr. Note 19 is the median P/E the stock had the past two years. Although growth has slowed since then, I think the stock was undervalued during that time. Also, note what a deal this stock was a decade ago. After the Financial Crisis in 2008, stocks had low valuations as investors were afraid of the market after two crashes in ten years (2000 & 2008).

This stock has ample upside to my 2020 and 2021 Fair Values. Also, UnitedHealth has had current year estimate increases every qtr since 2015 Q4. That’s 16 straight qtrs!

Bottom Line
UnitedHealth (UNH) stock is one of the world’s safest and does have a combination of a double-digit Est. LTG, a dividend yield, and a stock buyback program. This has been an outstanding stock, but there’s been periods it didn’t go up, like 2006-2012 when it fell below $60 and couldn’t rise above.

Recently, the trend has turned down due to political pressure. But the trend may have reversed higher this qtr. Now, with a P/E of just 15 (based on 2020 estimates) this quality company has solid upside.

UNH moves up from 8th to 6th in the Conservative Growth Portfolio Power Rankings. The stock drops from 21st to 23rd in the Growth Portfolio Power Rankings.

Power Rankings
Growth Stock Portfolio

23 of 38

Aggressive Growth Portfolio

N/A

Conservative Stock Portfolio

6 of 34

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