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UnitedHealth (UNH) Hits 52-Week High on Expansion Plans

Zacks Equity Research

Shares of UnitedHealth Group Inc. (UNH) scaled all-time new 52-week high at $88.45 on Sep 4, riding on a steady growth momentum following solid year-over-year performance in second-quarter 2014.

Additionally, the growth potential from Obamacare and the recent announcement of expansion plans have also fuelled optimism in this Zacks Rank #3 (Hold) stock. Notably, this healthcare insurer’s shares rose about 17.7% since the beginning of 2014.

Yesterday’s closing price represents a strong year-to-date return of about 16.4%, against 8.5% clocked by the S&P 500 index. Average volume of shares traded over the last three months stands at approximately 3,659K.

Earnings Review

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UnitedHealth has kept the earnings streak alive with an average beat of 5.1% in the last four quarters.

On Jul 17, the company reported second-quarter operating earnings per share (EPS) of $1.42 that surpassed the Zacks Consensus Estimate of $1.25 and the year-ago quarter EPS of $1.40.

The upsurge was led by higher revenues, partly offset by higher medical operating costs. Moreover, UnitedHealth is consistently benefiting from growth in the Medicaid and Medicare businesses, along with its robust performance overseas.

Rationale

UnitedHealth is the largest insurer in the U.S. in terms of the coverage of people availing health law plans in Colorado, Maryland, Nevada and New York. In August, the company disclosed its plans to increase its market coverage by six-folds to 24 states by 2015.

The decision follows the participation of UnitedHealth in the Obamacare health plans, which have brightened the prospects for its membership growth and for competitive products in these markets. Alongside, the company aims to control operating costs going forward.

We believe that prudent management and a sturdy balance sheet will support UnitedHealth’s expansion plans and its leading market position. These factors also justify the positive sentiment of investors in the stock. Moreover, the long-term growth rate for UnitedHealth is pegged at 10.0%, quite close to the peer group’s average of 10.3%.

Stocks to Consider

Investors interested in healthcare stocks could consider stocks like Universal Health Services Inc. (UHS), HCA Holdings Inc. (HCA) and Triple-S Management Corporation (GTS). All these stocks sport a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on UNH
Read the Full Research Report on UHS
Read the Full Research Report on HCA
Read the Full Research Report on GTS


Zacks Investment Research