UNH Stock: UnitedHealth Is A Great Bet On The $2.8 Trillion U.S. Health Care Industry

motek 1The UNH stock article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Summary

  • There’s an ongoing pandemic but I’m still confident that health care companies are worth adding to your investing portfolios.
  • The universal fear over COVID-19 are inspiring more people to seek better health insurance/benefits plans.
  • UnitedHealth Group is a diversified health care company that we should all invest in. It is the largest health insurance provider in the United States.
  • UnitedHealth Group’s market share in the U.S. health insurance industry is 14.2%. The U.S. health and medical insurance industry in the U.S. is worth $1.1 trillion.
  • The overall health care industry in the U.S. is $2.8 trillion. UnitedHealth Group has other health care-related services, not just providing health insurance.

It is common sense that more people are now buying health/medical insurance during this global pandemic. There’s still no vaccine against the SARS-CoV-2 virus that causes the COVID-19 respiratory disease. Getting treated for COVID-19 is very expensive. It is therefore prudent for us to invest in health insurance leaders like UnitedHealth Group (UNH). This company is the largest health insurance provider in the United States. UNH is also still affordable. It is trading at just 1.24 TTM EV/Sales valuation multiple.

UNH a YTD price return of +16.63% but I’m still endorsing it as a buy. United Health’s stock is still trading well below its 52-week high of $315.84. UNH has obvious upside potential. UnitedHealth Group’s management recently announced they will increase dividend payments by 15.7%.

unh stock-stock
(Source: Seeking Alpha Premium)

Seeking Alpha’s Quant Rating system gives UNH a Value grade of B-. This stock is still very affordable to own. UNH is a buy because the chart below says its Forward Enterprise Value/Sales is just 1.18. This valuation is 81.90% below the Health Care Sector’s average EV/Sales ratio of 6.53. This glaring market undervaluation of UNH should be exploited as soon as possible.

(Source: Seeking Alpha Premium)

I have a one-year price target of $338 for UNH. This is just a bit higher than the average PT at TipRanks, $332.86. I have a higher accuracy than 99% of Wall Street analysts tracked by TipRanks. Trust me, UNH can easily hit $338 within the next twelve months.

unh stock-rating

Why UnitedHealth Group Has Long-term Prosperity

UNH is a buy because it is the no. 1 health insurance vendor in the United States. UNH’s market share in the U.S. went as high as 14.1%. It is always best to invest in companies that are leaders in their industry. Becoming the leader in U.S. health insurance means UnitedHealth Group has a great management team. Being no. 1 also indicates that most customers trust UnitedHealth Group.

The long-term prosperity of UnitedHealth Group is assured. The U.S. touts a health and medical industry that is worth $1.1 trillion. This massive industry where UNH is the leader is not going to contract under any pandemic. My takeaway is that a pandemic that has no universal cure or vaccine actually boosts the global need for more health insurance/medical plans. No thanks to COVID-19, the health insurance industry could be worth $1.3 billion this year.

market size
(Source: Ibis World)

As per Q1 earnings report, health insurance/medical plans premiums are contributing $51.1 billion (+2.2% Y/Y) to UnitedHealth Group’s quarterly revenue. There were travel restrictions in America due to COVID-19. Insurance agents were not as mobile as they were before COVID-19 came around. I expect Q2’s insurance premiums-related revenue to be as high as $55 billion. Trump is hell-bent on re-opening America. Health insurance sales agents can again go out and be more aggressive.

UnitedHealth Group Is Not Just About Health Insurance

The Q1 revenue of UNH was $64.4 billion. Most of that ($51.1 billion) came from insurance premiums. The remaining $13.3 billion came from UNH’s other health care-related segments. UNH is a buy because it has diversified outside health insurance. It has business segments that reduces its reliance on premium payments. UnitedHealth Group made recent acquisitions.

UnitedHealth’s subsidiary, OptumHealth, had Q1 revenue of $9.2 billion (+36.9%). The other subsidiary, OptumInsights, had Q1 sales of $19.2 billion (+10.3% Y/Y). OptumRX had Q1 sales of $21.6 billion (+21% Y/Y). UNH is a buy because he Optum-branded subsidiaries are growing at double-digit rate.

UnitedHealth is a strong buy because it has diversified enough to that point it can prosper from the $2.8 trillion U.S. health care industry. UNH has patient care services. It has pharmacies. It has everything under the sun that could improve the health of Americans.

Diversification even in to low-margin health care services is still good. It helps boost the overall financial prosperity of UNH. UnitedHealth Group is again selling ACA (Affordable Care Act) in Maryland next year. UNH previously quit ACA business because politicians impose premium limits on it. My takeaway is that UNH is again going to sell ACA because politicians agreed to increase premium limits for it. A little profit on ACA plans can add up to substantial sales.

The diversified businesses of UnitedHealth Group is likely why it managed to achieve a 5-year revenue CAGR of 12.86%. This is greater than Humana’s (HUM) 5-year CAGR of 5.99%. UNH also outperformed the 7.78% 5-year revenue CAGR of Anthem (ANTM). Anthem is the no. 3 health insurance firm in the U.S. Humana is no. 4.

unh stock-growth
(Source: Seeking Alpha Premium)

Conclusion

We should go long on UnitedHealth Group while it still stock is still very affordable. This company is consistently profitable. Thanks to its health care-centric subsidiaries, UNH is also consistently growing its annual revenue. Optum-branded subsidiaries are growing at teens (10-20%) annual CAGR. A growing, consistently profitable company that trades at just 1.2 EV/Sales is a golden investing opportunity.

My buy rating for UNH stock is also largely influenced by its very bullish one-year forecast from I Know First.  A stock only needs to score 100 to get a clear buy signal from I Know First. As you can see from the chart below, UNH has a one-year forecast score of 234.02. More importantly, I Know First’s one-year forecast for UNH has a high predictability score of 0.73.

unh stock

Past I Know First UNH Stock Forecast Success

I Know First gave bullish UNH stock forecast in the past. On March 13, 2020, the I Know First algorithm issued a bullish 3-month UNH stock forecast with a signal of 1.18 and a predictability of 0.53, the algorithm successfully forecasted the movement of the UNH share.  After 3 months, UNH shares rose by 13.87% in line with the I Know First algorithm’s forecast. See chart below.


Here at I Know First, our stock market AI has modeled and predicted assets price movement worldwide for short-term and long-term time horizons, ranging from 3 days to a year. Since 2011, we have been providing stock market predictions, as well as S&P 500, Forex Forecaster as well as Apple stock news. Today, we are producing artificial intelligence stock prediction for over 10,500 assets, including gold price forecast and commodity predictions. These forecasts generated by our artificial intelligence stock prediction tool are used by institutional clients, as well as private investors and traders to identify the best investment opportunities in the market.

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