April 19, 2016
Today was a big day for UnitedHealth Group (UNH). UNH shares climbed after the company made some gamechanging announcements. This has people asking me whether there's still time to buy the health insurer, so let's dig into the details.
First, the country's largest health insurer announced that it will be exiting most Obamacare exchanges next year. Currently, UnitedHealth Group sells ACA insurance plans in 34 states, offering coverage to 795,000 people. While this is a blow for the Affordable Care Act; this is good news for UnitedHealth Group. These insurance plans cost UnitedHealth Group $475 million in FY 2015, and $650 million in losses are expected for FY 2016.
Despite these losses, UnitedHealth Group still beat sales and earnings expectations in this morning's quarterly report. Compared with the year ago quarter, revenue climbed 24.5% to $44.53 billion. This beat the $43.96 billion consensus estimate by 1.3%.
Over the same period, net earnings jumped 14.2% to $1.61 billion, or $1.67 per share. Excluding special items, adjusted EPS was $1.81. Analysts were looking for $1.72 EPS, so UnitedHealth Group posted a 5.2% earnings surprise.
Encouraged by these results, particularly from its Optum business, UnitedHealth Group lifted its 2016 earnings forecast to a range of $7.75 and $7.95 per share. This represents 20.2% to 23.3% annual earnings growth, and is above the Street view of $7.73 EPS.
UNH remains one of my top healthcare plays. With a dividend yield of 1.5%, it trades at less than 15 times forecasted earnings. For all of these reasons, I consider UNH a B-rated Buy.