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UnitedHealth is Bound to Benefit From Telemedicine

Stock (Symbol)

UnitedHealth (UNH)

Stock Price

$307

Sector
Healthcare
Data is as of
August 4, 2020
Expected to Report
October 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, is bound to benefit from the move to telemedicine. At its peak in April, UnitedHealthcare facilitated more than 4 million digital care visits, 30x the number of visits in January, and management expects digital and home care to expand in the coming years. UNH utilizes Vivify for remote patient monitoring, Rally its keeping-healthy app and website, AI-enabled individual health records, pharmacy e-commerce via OptumRX, and a proprietary scalable telemedicine program. Home infusion visits by company nurses are up to 1/2 the cost of traditional settings. Telemedicine and home visits should be cost savers for UnitedHealth in the coming years, and I believe this has not been reflected in the stock price.

UnitedHealth Group has two main divisions: UnitedHealthcare, which is health insurance, and Optum, a program designed to keep people healthy and thus lower expensive healthcare costs. Between the two divisions, UnitedHealthcare is doing almost twice the revenue as Optum, but the insurance division grew revenue 5% last qtr vs 12% for Optum. Optum is going to be a catalyst for this company in the coming years as people are now more alert about staying healthy. Here’s more on each:

  • UnitedHealthcare provides health care benefits, serving individuals and employers, and Medicare and Medicaid beneficiaries.
  • Optum a health services business using market-leading information, data analytics, technology and clinical insights to help improve overall health system performance and reduce healthcare costs and consists of:
    • OptumHealth, a health and wellness business for the physical, emotional and financial needs of people.
    • OptumInsight, which provides technology, operational and consulting services to participants in the health care industry.
    • OptumRx, a pharmacy benefit manager with relationships with Walgreen’s and CVS to make picking up prescriptions easy.

UnitedHealth stock is safe and stable, while also providing enough profit growth for growth stock investors. 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. The stock also has a reasonable P/E of 18. Management also buys back stock. The company did $5.5 billion in share repurchases in 2019 and increased the dividend 20%. UNH is part of the Conservative Growth Portfolio and Growth Portfolio

One Year Chart

Last qtr, UNH had 98% profit growth because members delayed elective surgeries. Most of those surgeries will occur in future qtrs, so we have one great qtr of profit growth with some poor qtrs likely ahead. The 0% profit growth 2QtrsAgo had to do with two extra days in 2020 Q1 than there were in 2019 Q1, and these added expenses brought growth lower.

The Est. LTG of 13% is lower than I think it should be. I consider this stock to be a 15-17% grower. Telemedicine might reduce costs for UnitedHealth, which could raise profits and perhaps push the Est. LTG up.

The P/E of 18 is very reasonable for a quality company like this growing at the rate it is.

Earnings Table
Last qtr UNH delivered 98% growth vs. analyst estimates of 32%. Revenue grew 3%.

Annual Profit Estimates increased slightly, as qtrly estimates were reduced. 2QtrsAgo was the first time UNH hasn’t had current year estimates increase since 2015 Q4. That was a nice string of 17 straight qtrs.

Qtrly profit Estimates are for -20%, -31%, 15%, -39% and 16% profit growth the next 4 qtrs. Estimates are for -20% profit growth this qtr. Wait, what? How do you go from great growth to negative growth? There is pent-up demand from surgeries that were postponed during March, April and May, but if you have an underlying condition, you’re probably still avoiding the hospital. And there’s a big benefit to people staying at home as they aren’t out hurting themselves. The company expects its medical cost ratio to be around 90% in June, then above 100% in the second half of the year. I believe UNH will continue to have solid profits in the coming qtrs, and I think estimates are too low. Especially this qtr. 

Fair Value
My Fair Value P/E was raised to 20 last qtr as Trump was seen as likely to win the Presidential election in November. Now I keep it at 20 as the advances in telemedicine should mean lower costs and higher profits for the company.

This stock has nice upside when we look to next year. With the stock market having a banner year, this is one of a handful of stocks that is currently below my 2020 Fair Value

 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. Look at how pretty this chart is. 

This is a quality company that’s very efficient. And that’s only gonna get better with telemedicine becoming a bigger part of our lives. 

This qtr, UNH moves up from 7th to 6th in the Conservative Growth Portfolio Power Rankings.

The stock moves down from 31st to 36th in the Growth Portfolio Power Rankings. There are a lot of great growth stocks right now, and that pushed UNH down the list.

Power Rankings
Growth Stock Portfolio

36 of 46

Aggressive Growth Portfolio

N/A

Conservative Stock Portfolio

6 of 31