Apr. 16, 2019 2:46 PM ET
Summary
UnitedHealth reported
strong first-quarter results.
Markets are still
fixated over the political uncertainties surrounding the sector.
Buying opportunity
discussed.
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discussed in more depth with members of my private investing community, DIY
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Despite beating Wall
Street analyst expectations for the first quarter, shares of UnitedHealth (UNH) slumped after the report. What is the
story value investors are missing? With attractive valuations, pitted against
the general desire to avoid health care plan and drug store stocks, investors
should look again at UNH's stock.
First-Quarter Results and 2019 Outlook
UNH reported EPS GAAP of $3.56 as revenue
rose 9.3% to $60.31 billion. The revenue beat by $500 million clearly
demonstrates that the company’s prospects are getting clouded over the risks of
the government passing Medicare for all citizens. Optum and UnitedHealthcare once
again reported strong earnings. Net margin improved to 5.7% on earnings from
operations of $4.8 billion.
UNH even increased
its 2019 adjusted EPS to $14.50-$14.75. Net income came in at $13.80-$14.05 a
share. Cash flow of $3.2 billion is consistent with last year’s levels.
Management noted strong return on equity at 26.8% and dividend payments growing
19.1% year over year to $860 million.
Stock Drops Irrationally
UnitedHealth’s 7.5%
weekly drop and nearly 25% from 52-week highs set last December 2018 appears
irrational. The stock now trades below one times sales, while the forward P/E
is below 15 times. Yet, with the strong shareholder returns, 23% earnings from
operations from UnitedHealthcare, and its strong customer base, markets are
ignoring the company’s upside potential.
UnitedHealthcare
Employer & Individual added 705,000 customers while UnitedHealthcare
Medicare & Retirement added 405,000 more people in the first quarter
compared to last year. Even UnitedHealthcare Global added 30,000 more people
year on year.
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