BUY UNITEDHEALTH GROUP INC UNH

Transcription

BUY UNITEDHEALTH GROUP INC UNH
October 19, 2014
NYSE: UNH
UNITEDHEALTH GROUP INC
BUY
A+
A
A-
HOLD
B+
B
Annual Dividend Rate
$1.50
B-
C+
C
Annual Dividend Yield
1.75%
SELL
C-
D+
Beta
0.55
Sector: Health Care
UNH BUSINESS DESCRIPTION
UnitedHealth Group Incorporated operates as a
diversified health and well-being company in the
United States.
D
D-
E+
E
E-
Market Capitalization
$83.0 Billion
Sub-Industry: Managed Health Care
Weekly Price: (US$)
SMA (50)
F
BUY
52-Week Range
$66.72-$88.85
RATING SINCE
TARGET PRICE
01/05/2010
$112.07
Price as of 10/16/2014
$85.39
Source: S&P
SMA (100)
1 Year
2 Years
120
110
TARGET
TARGET
TARGETPRICE
PRICE
PRICE$112.07
$112.07
$112.07
TARGET
100
STOCK PERFORMANCE (%)
3 Mo.
Price Change
1.94
1 Yr.
13.56
3 Yr (Ann)
21.83
90
80
GROWTH (%)
Last Qtr
6.97
2.03
6.53
Revenues
Net Income
EPS
12 Mo.
6.67
1.72
5.10
70
3 Yr CAGR
8.63
3.96
7.38
60
50
Rating History
RETURN ON EQUITY (%)
UNH
Q3 2014
16.97
Q3 2013
16.99
Q3 2012
18.33
BUY
Ind Avg
13.11
13.86
15.07
S&P 500
14.28
13.75
13.93
Volume in Millions
40
20
2012
P/E COMPARISON
60
2013
0
2014
COMPUSTAT for Price and Volume, TheStreet Ratings, Inc. for Rating History
15.36
27.15
18.06
UNH
Ind Avg
S&P 500
2012
2013
Q3 1.63
Q2 1.42
Q1 1.10
Q4 1.41
Q3 1.53
Q2 1.40
Q1 1.16
Q4 1.20
Q3 1.50
Q2 1.27
Q1 1.31
EPS ANALYSIS¹ ($)
2014
NA = not available NM = not meaningful
1 Compustat fiscal year convention is used for all fundamental
data items.
RECOMMENDATION
We rate UNITEDHEALTH GROUP INC (UNH) a BUY. This is based on the convergence of positive investment
measures, which should help this stock outperform the majority of stocks that we rate. The company's
strengths can be seen in multiple areas, such as its solid stock price performance, growth in earnings per
share, revenue growth, largely solid financial position with reasonable debt levels by most measures and
increase in net income. We feel these strengths outweigh the fact that the company shows weak operating
cash flow.
HIGHLIGHTS
UNH's revenue growth trails the industry average of 19.4%. Since the same quarter one year prior, revenues
slightly increased by 7.0%. This growth in revenue appears to have trickled down to the company's bottom
line, improving the earnings per share.
The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting
the earnings growth and other positive factors similar to those we have cited here. Turning our attention to
the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down
market. However, in any other environment, this stock still has good upside potential despite the fact that it
has already risen in the past year.
UNITEDHEALTH GROUP INC has improved earnings per share by 6.5% in the most recent quarter compared to
the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth
over the past two years. We feel that this trend should continue. During the past fiscal year, UNITEDHEALTH
GROUP INC increased its bottom line by earning $5.50 versus $5.28 in the prior year. This year, the market
expects an improvement in earnings ($5.60 versus $5.50).
The net income growth from the same quarter one year ago has exceeded that of the Health Care Providers &
Services industry average, but is less than that of the S&P 500. The net income increased by 2.0% when
compared to the same quarter one year prior, going from $1,570.00 million to $1,602.00 million.
The current debt-to-equity ratio, 0.54, is low and is below the industry average, implying that there has been
successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick
ratio of 0.42 is very weak and demonstrates a lack of ability to pay short-term obligations.
This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet Ratings nor any other party guarantees its accuracy
or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet Ratings. Copyright(c) 2006-2014. All rights reserved.
Report Date: October 19, 2014
PAGE 1
October 19, 2014
NYSE: UNH
UNITEDHEALTH GROUP INC
Sector: Health Care Managed Health Care Source: S&P
Annual Dividend Rate
$1.50
Annual Dividend Yield
1.75%
PEER GROUP ANALYSIS
40%
AET
V
FA
AB
OR
CNC
LE
UN
R
VO
FA
CI
UNH
-5%
LE
AB
Revenue Growth (TTM)
MGLN
WLP
0%
UAM
14%
EBITDA Margin (TTM)
Companies with higher EBITDA margins and
revenue growth rates are outperforming companies
with lower EBITDA margins and revenue growth
rates. Companies for this scatter plot have a market
capitalization between $659 Million and $83 Billion.
Companies with NA or NM values do not appear.
*EBITDA – Earnings Before Interest, Taxes, Depreciation and
Amortization.
40%
REVENUE GROWTH AND EARNINGS YIELD
AET
V
FA
AB
OR
CNC
52-Week Range
$66.72-$88.85
Price as of 10/16/2014
$85.39
Healthcare spending in the US exceeds $2 trillion per year. A major shift in healthcare spending - from the
private to the public sector - is expected as more and more baby boomers enter the Medicare system. In
addition to demographic factors, the passage of comprehensive healthcare reform legislation including an
individual mandate to have health insurance will reshape the industry in the coming decade.
MOH
HUM
HNT
Market Capitalization
$83.0 Billion
INDUSTRY ANALYSIS
The healthcare providers and services industry includes establishments offering healthcare facilities and
managed care services such as hospitals, long-term care centers, assisted living facilities, outpatient
rehabilitation clinics, outpatient dialysis centers, radiation oncology facilities and ambulatory surgical suites.
The industry has witnessed continued growth during recent years. An aging population, increasing consumer
awareness and advancement in technology will remain primary growth drivers in the near future.
REVENUE GROWTH AND EBITDA MARGIN*
WCG
Beta
0.55
WCG
The largest two segments of publically funded healthcare are Medicaid and Medicare. Medicaid is a
means-tested program for the poor funded at the federal level and state level. Medicare is a single-payer
healthcare program entirely funded at the federal level and focuses on the older population of people age 65
and older.
Small businesses, which have struggled to provide adequate health insurance to employees, will receive tax
benefits to offer health insurance to their employees. Most large companies offer benefits to compete in the
labor market, even though the associated outflow has a significant impact on the bottom line. Collection
challenges contribute to rising expenses for providers. Administrative expenses, which include billing,
collection and payment processes account for up to 30% of all expenditures. Cost-saving initiatives by
payers, providers and employers have helped keep expenses under check, but have been generally
insufficient to bring about any systemic optimization.
The introduction of consumer-driven healthcare (CDHC) is a significant step toward disrupting this cost cycle.
CDHC increases consumer awareness regarding cost and quality of healthcare while providing greater
control over personal health management.
Looking forward, more brand-name drugs will continue to become available as generics over the next few
years. This could help healthcare providers realize savings in their pharmacy costs. The individual mandate
for healthcare insurance creates a solid base of customers for the healthcare providers and services
industry. This may build in a steady growth rate for the healthcare providers and services industry in the
intermediate future.
LE
UN
R
VO
FA
MGLN
HUM
WLP
HNT
UNH
CI
-5%
LE
AB
Revenue Growth (TTM)
MOH
-20%
UAM
10%
Earnings Yield (TTM)
Companies that exhibit both a high earnings yield
and high revenue growth are generally more
attractive than companies with low revenue growth
and low earnings yield. Companies for this scatter
plot have revenue growth rates between -5% and
37.1%. Companies with NA or NM values do not
appear.
PEER GROUP: Health Care Providers & Services
Recent
Ticker
Company Name
Price ($)
UNH
UNITEDHEALTH GROUP INC
85.39
UAM
UNIVERSAL AMERICAN CORP
8.19
CNC
CENTENE CORP
78.29
HNT
HEALTH NET INC
44.15
WLP
WELLPOINT INC
111.92
WCG
WELLCARE HEALTH PLANS INC
60.33
AET
AETNA INC
73.43
CI
CIGNA CORP
88.03
MOH
MOLINA HEALTHCARE INC
43.85
HUM
HUMANA INC
125.73
MGLN
MAGELLAN HEALTH INC
55.19
Market
Cap ($M)
82,967
659
4,587
3,545
30,488
2,648
26,038
23,224
2,039
19,394
1,590
Price/
Earnings
15.36
NM
25.34
15.07
13.82
18.56
12.84
12.09
199.32
18.88
15.90
Net Sales
TTM ($M)
128,158.00
2,091.37
13,210.90
11,978.60
72,090.00
11,076.72
54,722.50
33,446.00
7,773.98
44,440.00
3,736.30
Net Income
TTM ($M)
5,536.00
-129.33
184.46
236.25
2,236.50
143.48
2,101.80
2,015.00
10.75
1,050.00
96.43
The peer group comparison is based on Major Managed Health Care companies of comparable size.
This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet Ratings nor any other party guarantees its accuracy
or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet Ratings. Copyright(c) 2006-2014. All rights reserved.
Report Date: October 19, 2014
PAGE 2
October 19, 2014
NYSE: UNH
UNITEDHEALTH GROUP INC
Sector: Health Care Managed Health Care Source: S&P
Annual Dividend Rate
$1.50
Annual Dividend Yield
1.75%
Beta
0.55
Market Capitalization
$83.0 Billion
52-Week Range
$66.72-$88.85
Price as of 10/16/2014
$85.39
COMPANY DESCRIPTION
UnitedHealth Group Incorporated operates as a
diversified health and well-being company in the United
States. The company's UnitedHealthcare segment offers
consumer-oriented health benefit plans and services for
large national employers, public sector employers,
mid-sized employers, small businesses, and individuals;
health care coverage, and health and well-being services
to individuals aged 50 and older addressing their needs
for preventive and acute health care services; services
dealing with chronic disease and other specialized issues
for older individuals; Medicaid plans, Children's Health
Insurance Program, and health care programs; and health
services, including commercial health and dental
benefits. This segment serves through a network of
820,000 physicians and other health care professionals,
and approximately 6,000 hospitals and other facilities. Its
OptumHealth segment provides health management
services, integrated care delivery services, consumer
engagement and relationship management, sales
distribution platform services, and financial services.
This segment serves individuals through programs
offered by employers, payers, government entities, and
directly with the care delivery systems. The company's
OptumInsight segment offers software and information
products, advisory consulting services, and business
process outsourcing services to hospitals, physicians,
commercial health plans, government agencies, life
sciences companies, and other organizations. Its
OptumRx segment provides pharmacy benefit
management services and programs, including retail
pharmacy network management; mail order and specialty
pharmacy; manufacturer rebate contracting and
administration; and benefit plan design and consultation;
and claims processing services, as well as offers various
formulary management and compliance, drug utilization
review, and disease and drug therapy management
services. The company was founded in 1974 and is based
in Minnetonka, Minnesota.
STOCK-AT-A-GLANCE
Below is a summary of the major fundamental and technical factors we consider when determining our
overall recommendation of UNH shares. It is provided in order to give you a deeper understanding of our
rating methodology as well as to paint a more complete picture of a stock's strengths and weaknesses. It is
important to note, however, that these factors only tell part of the story. To gain an even more comprehensive
understanding of our stance on the stock, these factors must be assessed in combination with the stock’s
valuation. Please refer to our Valuation section on page 5 for further information.
UNITEDHEALTH GROUP INC
UnitedHealth Group Center
Minnetonka, MN 55343
USA
Phone: 952-936-1300
http://www.unitedhealthgroup.com
THESTREET RATINGS RESEARCH METHODOLOGY
FACTOR
SCORE
4.0
Growth
out of 5 stars
weak
Measures the growth of both the company's income statement and
cash flow. On this factor, UNH has a growth score better than 70% of
the stocks we rate.
strong
4.5
Total Return
out of 5 stars
weak
Measures the historical price movement of the stock. The stock
performance of this company has beaten 80% of the companies we
cover.
strong
4.5
Efficiency
out of 5 stars
weak
Measures the strength and historic growth of a company's return on
invested capital. The company has generated more income per dollar of
capital than 80% of the companies we review.
strong
5.0
Price volatility
out of 5 stars
weak
Measures the volatility of the company's stock price historically. The
stock is less volatile than 90% of the stocks we monitor.
strong
5.0
Solvency
out of 5 stars
weak
Measures the solvency of the company based on several ratios. The
company is more solvent than 90% of the companies we analyze.
strong
3.5
Income
out of 5 stars
weak
Measures dividend yield and payouts to shareholders. The company's
dividend is higher than 60% of the companies we track.
strong
TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both
price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to
perform against a general benchmark of the equities market and interest rates. While our model is
quantitative, it utilizes both subjective and objective elements. For instance, subjective elements include
expected equities market returns, future interest rates, implied industry outlook and forecasted company
earnings. Objective elements include volatility of past operating revenues, financial strength, and company
cash flows.
Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown
as compared to potential profit volatility, i.e.how much one is willing to risk in order to earn profits; the level of
acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings
growth; and the financial strength of the underlying company as compared to its stock's valuation as
compared to projected earnings growth; and the financial strength of the underlying company as compared
to its stock's performance. These and many more derived observations are then combined, ranked, weighted,
and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of
selecting stocks.
This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet Ratings nor any other party guarantees its accuracy
or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet Ratings. Copyright(c) 2006-2014. All rights reserved.
Report Date: October 19, 2014
PAGE 3
October 19, 2014
NYSE: UNH
UNITEDHEALTH GROUP INC
Sector: Health Care Managed Health Care Source: S&P
Annual Dividend Rate
$1.50
Annual Dividend Yield
1.75%
Consensus EPS Estimates² ($)
IBES consensus estimates are provided by Thomson Financial
1.53
5.60 E
6.10 E
Q4 FY14
2014(E)
2015(E)
INCOME STATEMENT
Net Sales ($mil)
EBITDA ($mil)
EBIT ($mil)
Net Income ($mil)
Q3 FY14
32,759.00
3,276.00
2,903.00
1,602.00
Q3 FY13
30,624.00
2,980.00
2,631.00
1,570.00
Q3 FY14
9,212.00
85,426.00
17,517.00
32,604.00
Q3 FY13
10,719.00
81,863.00
16,783.00
32,016.00
Q3 FY14
26.59%
10.00%
8.86%
1.50
6.48%
16.97%
Q3 FY13
25.63%
9.73%
8.59%
1.47
6.64%
16.99%
Q3 FY14
0.74
0.35
152.00
19.10
Q3 FY13
0.76
0.34
178.00
14.78
Q3 FY14
973
0.38
1.63
33.51
NA
3,676,448
Q3 FY13
998
0.28
1.53
32.08
NA
3,860,221
Beta
0.55
Market Capitalization
$83.0 Billion
52-Week Range
$66.72-$88.85
Price as of 10/16/2014
$85.39
FINANCIAL ANALYSIS
UNITEDHEALTH GROUP INC's gross profit margin for the third quarter of its fiscal year 2014 is essentially
unchanged when compared to the same period a year ago. The company has grown its sales and net income
during the past quarter when compared with the same quarter a year ago, and although its growth in net
income has outpaced the industry average, its revenue growth has not. UNITEDHEALTH GROUP INC has very
weak liquidity. Currently, the Quick Ratio is 0.42 which clearly shows a lack of ability to cover short-term cash
needs. The liquidity decreased from the same period a year ago, despite already having weak liquidity to
begin with. This would indicate deteriorating cash flow.
At the same time, stockholders' equity ("net worth") has remained virtually unchanged only increasing by
1.83% from the same quarter last year. The key liquidity measurements indicate that the company is in a
position in which financial difficulties could develop in the near future.
STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the
next 12-months. To learn more visit www.TheStreetRatings.com.
BALANCE SHEET
Cash & Equiv. ($mil)
Total Assets ($mil)
Total Debt ($mil)
Equity ($mil)
PROFITABILITY
Gross Profit Margin
EBITDA Margin
Operating Margin
Sales Turnover
Return on Assets
Return on Equity
DEBT
Current Ratio
Debt/Capital
Interest Expense
Interest Coverage
SHARE DATA
Shares outstanding (mil)
Div / share
EPS
Book value / share
Institutional Own %
Avg Daily Volume
2 Sum of quarterly figures may not match annual estimates due to
use of median consensus estimates.
This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet Ratings nor any other party guarantees its accuracy
or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet Ratings. Copyright(c) 2006-2014. All rights reserved.
Report Date: October 19, 2014
PAGE 4
October 19, 2014
NYSE: UNH
UNITEDHEALTH GROUP INC
Sector: Health Care Managed Health Care Source: S&P
Annual Dividend Rate
$1.50
Annual Dividend Yield
1.75%
RATINGS HISTORY
Our rating for UNITEDHEALTH GROUP INC has not
changed since 1/5/2010. As of 10/16/2014, the stock
was trading at a price of $85.39 which is 3.9% below
its 52-week high of $88.85 and 28.0% above its
52-week low of $66.72.
BUY: $56.88
2 Year Chart
Market Capitalization
$83.0 Billion
$80
Price/Earnings
$70
2013
1
2
3
Price reflects the closing price as of the date listed, if available
RATINGS DEFINITIONS &
DISTRIBUTION OF THESTREET RATINGS
(as of 10/16/2014)
1
2
3
29.60% Hold - We do not believe this stock offers
conclusive evidence to warrant the purchase or sale of
shares at this time and that its likelihood of positive total
return is roughly in balance with the risk of loss.
1
2
TheStreet Ratings
14 Wall Street, 15th Floor
New York, NY 10005
www.thestreet.com
Research Contact: 212-321-5381
Sales Contact: 866-321-8726
5
3
4
5
Price/Sales
1
2
3
4
5
3
4
5
discount
UNH 12.34
Peers 12.84
• Average. The P/CF ratio, a stock’s price divided by
the company's cash flow from operations, is useful
for comparing companies with different capital
requirements or financing structures.
• UNH is trading at a valuation on par to its peers.
Price to Earnings/Growth
1
2
3
premium
4
5
discount
UNH 8.49
Peers 7.99
• Average. The PEG ratio is the stock’s P/E divided by
the consensus estimate of long-term earnings
growth. Faster growth can justify higher price
multiples.
• UNH trades at a valuation on par to its peers.
Earnings Growth
1
2
3
4
lower
5
higher
UNH 5.10
Peers 16.16
• Lower. Elevated earnings growth rates can lead to
capital appreciation and justify higher
price-to-earnings ratios.
• However, UNH is expected to significantly trail its
peers on the basis of its earnings growth rate.
Sales Growth
discount
UNH 0.65
Peers 0.73
• Discount. In the absence of P/E and P/B multiples,
the price-to-sales ratio can display the value
investors are placing on each dollar of sales.
• UNH is trading at a discount to its industry on this
measurement.
2
premium
discount
UNH 2.55
Peers 3.06
• Discount. A lower price-to-book ratio makes a
stock more attractive to investors seeking stocks
with lower market values per dollar of equity on the
balance sheet.
• UNH is trading at a discount to its peers.
premium
20.70% Sell - We believe that this stock is likely to
decline by more than 10% over the next 12 months, with
the risk involved too great to compensate for any
possible returns.
4
UNH 14.00
Peers 18.15
• Discount. A lower price-to-projected earnings ratio
than its peers can signify a less expensive stock or
lower future growth expectations.
• UNH is trading at a discount to its peers.
Price/Book
1
Price/CashFlow
discount
premium
49.70% Buy - We believe that this stock has the
opportunity to appreciate and produce a total return of
more than 10% over the next 12 months.
5
discount
premium
To
Buy
4
UNH 15.36
Peers 27.15
• Discount. A lower P/E ratio than its peers can
signify a less expensive stock or lower growth
expectations.
• UNH is trading at a significant discount to its peers.
Price/Projected Earnings
From
Buy
Price as of 10/16/2014
$85.39
$90
premium
MOST RECENT RATINGS CHANGES
Date
Price
Action
10/16/12
$56.88 No Change
52-Week Range
$66.72-$88.85
VALUATION
BUY. The current P/E ratio indicates a significant discount compared to an average of 27.15 for the Health
Care Providers & Services industry and a discount compared to the S&P 500 average of 18.06. To use another
comparison, its price-to-book ratio of 2.55 indicates valuation on par with the S&P 500 average of 2.49 and a
discount versus the industry average of 3.06. The current price-to-sales ratio is well below the S&P 500
average and is also below the industry average, indicating a discount. Upon assessment of these and other
key valuation criteria, UNITEDHEALTH GROUP INC proves to trade at a discount to investment alternatives
within the industry.
$60
2012
Beta
0.55
1
2
3
lower
4
5
higher
UNH 6.67
Peers 14.59
• Lower. A sales growth rate that trails the industry
implies that a company is losing market share.
• UNH significantly trails its peers on the basis of
sales growth
DISCLAIMER:
The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but
TheStreet Ratings cannot guarantee its accuracy and completeness, and that of the opinions based thereon. Data is provided
via the COMPUSTAT® Xpressfeed product from Standard &Poor's, a division of The McGraw-Hill Companies, Inc., as well as
other third-party data providers.
TheStreet Ratings is a division of TheStreet, Inc., which is a publisher. This research report contains opinions and is provided
for informational purposes only. You should not rely solely upon the research herein for purposes of transacting securities or
other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a
qualified securities professional, before you make any investment. None of the information contained in this report constitutes,
or is intended to constitute a recommendation by TheStreet Ratings of any particular security or trading strategy or a
determination by TheStreet Ratings that any security or trading strategy is suitable for any specific person. To the extent any of
the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the
investment needs of any specific person. Your use of this report is governed by TheStreet, Inc.'s Terms of Use found at
http://www.thestreet.com/static/about/terms-of-use.html.
This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet Ratings nor any other party guarantees its accuracy
or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet Ratings. Copyright(c) 2006-2014. All rights reserved.
Report Date: October 19, 2014
PAGE 5