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UnitedHealth Shares Surge to 52-Week High

Zacks Equity Research

Shares of UnitedHealth Group Inc. (UNH) hit a new 52-week high at $78.57 on Mar 4, 2014.

The momentum in this Zacks Rank #3 (Hold) stock was driven by strong growth in 2013 despite the company facing funding pressures and government-sponsored benefits, three calendar quarters of sequestration in Medicare and reduced levels of overall reserve development.

UnitedHealth is well positioned in the market owing to its diversification, strong track record of superior operating performance, an elite management team and exposure to certain higher growth businesses, which will help it to sail smooth in 2014 – a year which is expected to be the toughest not only for UnitedHealth but for all other players in the sector like WellPoint Inc. (WLP), Humana Inc. (HUM) and Cigna Corp. (CI).

Given a multitude of changes and challenges facing its health benefits business, the company has sought a different strategy to promote its health services business  – Optum, which will fuel long-term growth. The company expects Optum to deliver strong top- and bottom-line growth in 2014, with operating earnings in the range of $3.1 billion to $3.2 billion and $45 billion to $46 billion in revenues. This performance will nail earnings growth for UnitedHealth at 25%. Last month, Optum announced its plans to acquire Audax Health Solutions to further its technological offerings.

UnitedHealth’s strategy to expand its international business in order to avoid strict regulations back home also allows it higher margins in that segment compared to the domestic business. Such strategies should, in turn, generate strong return on equity for the company.  

UnitedHealth is intensely focused on expanding its integrated and accountable care leadership through 2014 and has set an aggressive target of earning more than $65 billion in value-based contracts with care providers by 2018.

UnitedHealth’s strong balance sheet, coupled with strong cash flow, a moderate leverage ratio and its shareholder-friendly strategy of capital management provides the company inherent strength to succeed going forward.  

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