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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week

Unitedhealth Group

May 28th 2010 Unitedhealth Group
NYSE Symbol: UNH
Industry: Healthcare HMO
Price as of 5/28: $29.07


The roller coaster ride in the stock market continues with a nice bounce this week ending once of the worst month's of May in history. Washington D.C. loves to pick battles. In the last month, Congress has been focused on bashing Goldman Sachs and BP. It seems everyone has forgotten about the healthcare reform and that's the way they like it. This week we'll feature a HMO that raised it's dividend this week indicating their financial health is much better than expected. The stock of the week is Unithhealth Group. The healthcare reform is expected to lower premiums for most consumers and cut into the profits of healthcare providers. Yet skepitism remains. The earnings estimates for most HMOs have not gone down and this week with Unitedhealth Group boosting their dividend indicates they're comfortable with their ability to keep churning out profits and free cash flow. Making some money with a healthcare stock will help investors pay their premiums when they evitability go up.
Minneapolis-based UnitedHealth said first-quarter net profit rose to $1.19 billion, or $1.03 a share, up from $984 million, or 81 cents, earned in the same period a year ago. Analysts had been expecting earnings of 68 cents a share. Revenue reached $23.19 billion, up from $22 billion in the year-ago first quarter. Stephen Hemsley, president and CEO, called the health-care benefits provider's latest results "solid." UnitedHealth also said it expects 2010 revenue of about $92 billion and pegged net earnings for the year in a range of $3.15 to $3.35 a share, up from its previous forecast of $2.90 to $3.10 a share. Analysts had penciled in earnings of $3.06 a share. For 2011, UnitedHealth could be facing difficult earnings comparisons if it's required to boost spending for medical care under the new Patient Protection and Affordable Care Act of 2010. While the company's shares have been hit since President Barack Obama signed health reform legislation into law on March 23, Wall Street doesn't expect a significant impact on UnitedHealth from the initiative. As one analyst put it, UnitedHealth's best-in-class auxiliary businesses and unmatched scale should enable it to grow faster than its industry, which already benefits from the tail wind of health-care spending growth.
Unitedhealth's stock has gone sideways for more than a year. The stock is only up 1% since we featured it back in September excluding dividends. Currently the stock trades for 8.8 times earnings and 8.5 times next years earnings. The stock also trades for 0.37 times sales and 1.34 times book value of $21.46 a share. An analyst at Wedbush upgraded Unitedhealth Group las month indicating that the managed care sector is in a period of positive fundamentals with the pricing cycle beginning a multi-year upswing that is expected to drive commercial margin expansion. Their target for Unitedhealth is $35 a share. Unitedhealth's stock will go ex-dividend next week for 12 cents a share. There will always be headline risk with the healthcare group due to the rising costs and rising premuims, but managment at Unitedhealth is confident in their fundamentals as indicated by the increase in the dividend.