UnitedHealth Group (UNH) recently reported first quarter results that surprised on the Zacks Consensus Estimate by 51.5%. The health insurer, however, is out of favor with investors, trading at just 9.3x forward earnings.
UnitedHealth provides health insurance to 75 million individuals through different channels including to individuals directly, through small and medium-sized businesses and by providing coverage to large global companies.
The company has several divisions, including Ovations which is a partnership with the AARP for people over 50, AmeriChoice, which serves low-income families through Medicaid, OptumHealth, Ingenix and Prescription Solutions, which manages pharmacy benefits.
First Quarter Revenue Rises
On Apr 20, UnitedHealth Group reported first quarter earnings of $1.03 per share, beating the Zacks Consensus by 35 cents.
Revenue rose 5% to $23.2 billion from $22 billion in the year ago quarter. The quarter was boosted by several of the company’s segments including Ovations, AmeriChoice, Ingenix and Prescription Solutions, which each increased revenue by more than 10% compared to the first quarter of 2009.
The difficult employment environment impacted UnitedHealthcare revenue, which declined by 3% in the quarter, as there was employment attrition at continuing clients which reduced the number of people served in the quarter. Otherwise, there was a growth of 170,000 people in fee-based programs.
2010 Outlook
UnitedHealth Group is optimistic about the remainder of 2010. It issued 2010 earnings per share guidance in the range of $3.15 to $3.35 per share which was higher than the consensus.
Given the range, analysts moved to raise estimates. 15 estimates moved higher in the last week as the Zacks Consensus Estimate jumped to $3.32 from $3.06 per share in that time period. This is at the upper end of the company’s guidance range.
UnitedHealth Group is a Zacks #1 Rank (strong buy) stock.
Fundamentals
Healthcare stocks are simply out of favor right now. Call it a hangover from health care reform. UnitedHealth Group has attractive value characteristics. It has a price-to-book of just 1.5, which is well within the value parameters for healthcare stocks.
The company also has an excellent 5-year average return on equity of 21.8%. UNH pays a small dividend with a yield of 0.1% but that’s better than the industry average, which is zero.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service.
