Here's Why You Should Hold UnitedHealth Group (UNH) Stock Now
UnitedHealth Group Incorporated UNH is aided by a well-performing government business, owing to increasing premiums and numerous contract wins. The pursuit of buyouts, a solid financial position and a robust 2023 outlook are other tailwinds.
Zacks Rank & Price Performance
UnitedHealth Group currently carries a Zacks Rank #3 (Hold). The stock has gained 11.8% in the past three months compared with the industry’s 9.2% rise.
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Rising Estimates
The Zacks Consensus Estimate for UnitedHealth Group’s 2023 earnings and revenues is pegged at $24.83 per share and $368.2 billion, respectively, indicating an improvement of 11.9% and 13.6% from the year-ago reported figures.
UNH boasts an impressive surprise record. Its earnings outpaced estimates in each of the trailing four quarters, the average being 3.4%.
Solid Return on Equity
UnitedHealth Group’s efficiency in utilizing shareholders’ funds can be substantiated by its trailing 12-month return on equity of 26.7%, which remains higher than the industry’s average of 23.2%.
Robust 2023 Outlook
UnitedHealth Group anticipates revenues between $357 billion and $360 billion, the mid-point of which indicates an improvement of 10.6% from the 2022 reported figure.
Adjusted net earnings per share are estimated to be between $24.70 and $25 for the year. The mid-point of the updated guidance suggests 12% growth from the 2022 figure.
Key Drivers
Revenues of UnitedHealth Group continue to benefit from solid contributions from its UnitedHealthcare and Optum businesses. Premiums contributed 78% to the company’s total revenues in the second quarter. It is expected to rise further as UnitedHealth Group continues to serve more people through Medicare and Medicaid Advantage plans.
Through the UnitedHealthcare unit, UNH devises effective Medicare and Medicaid businesses, as well as integrates lucrative features within them from time to time. The top line of UnitedHealthcare segment is expected to benefit as the company grows its existing Medicaid markets and serves more people through fee-based and risk-based commercial offerings.
The company expects to add more than 900,000 members to its Medicare Advantage plan this year, expanding its membership base and fetching higher premiums. The Medicaid business is set to grow as it continues to support states in initiating redeterminations. The company aims to reach 96% of all Medicare customers with its 2024 Individual Medicare Advantage Plan.
Optum Health segment will continue to gain from more people served under value-based care arrangements and consistent strengthening of care delivery services. Optum Insight and Optum Rx are expected to benefit from enhanced capabilities and new sales and opportunities. However, excellent customer retention should also favor Optum Rx results. The company expects to serve more than 4 million patients in value-based care arrangements through Optum in 2023.
UnitedHealth Group has been pursuing collaborations with renowned healthcare providers to bolster its capabilities and solidify its nationwide presence. Its acquisition of Amedisys should enhance and expand its in-home capabilities and fuel growth in the Optum Health segment. Moreover, UNH will get access to Amedisys’s Medicare customers, thus enhancing its benefits business in the future. The company’s launch of Price Edge and zero-cost life-saving drugs should help retain more customers in the future. Its partnership with ProHealth Care should also aid Optum’s result in the future.
The company also earns through investment income. The metric increased nearly three-fold in the second quarter. A high-interest rate environment should boost this metric in the future.
A solid financial position is a dire need for companies that keep an eye on continued business investments. Apart from growth-related initiatives, a sound financial stand instills confidence in UNH in the tactical deployment of capital through share buybacks and dividend payments. The company returned $8.3 billion to shareholders in the first half of 2023 through share repurchases and dividends. Its dividend yield of 1.5% remains higher than the industry’s figure of 1.3%. UNH expects operating cash flow in the range of $27-$28 billion in 2023.
UNH currently carries an impressive Value Score of B.
Key Concerns
The health insurer has been experiencing an increase in operating expenses due to higher medical and operating costs and the cost of goods sold. Such expenses continue to weigh on the margin expansion. We expect total operating costs to rise 12% in 2023. Nevertheless, we believe that a systematic and strategic plan of action will drive growth in the long term.
Stocks to Consider
Some better-ranked stocks in the Medical space are Molina Healthcare, Inc. MOH, The Ensign Group, Inc. ENSG and Medpace Holdings, Inc. MEDP. Each of these companies presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The bottom line of Molina Healthcare surpassed estimates in each of the last four quarters, the average surprise being 7.2%. The Zacks Consensus Estimate for MOH’s 2023 earnings and revenues indicates 16% and 3.4% growth, respectively, from their corresponding prior-year actuals. The consensus mark for MOH’s 2023 earnings has moved 0.6% north in the past 60 days.
Ensign Group’s earnings beat estimates in two of the trailing four quarters, matched the mark once and missed on the remaining one occasion, the average surprise being 0.9%. The Zacks Consensus Estimate for ENSG’s 2023 earnings and revenues indicates 14.7% and 22.7% growth, respectively, from the prior-year actuals. The consensus mark for ENSG’s 2023 earnings has moved 0.2% north in the past 30 days.
Medpace’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 22.3%. The Zacks Consensus Estimate for MEDP’s 2023 earnings indicates a rise of 15.3%, while the consensus mark for revenues suggests an improvement of 27.8% from the corresponding year-ago reported figures. The consensus estimate for MEDP’s 2023 earnings has moved 2.1% north in the past 60 days.
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UnitedHealth Group Incorporated (UNH) : Free Stock Analysis Report
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