Diversified healthcare company UnitedHealth Group Incorporated (UNH) provides consumer-oriented health benefit plans, access to networks of care provider specialists, and pharmacy care services and programs. The Minnetonka, Minn.-based company’s double-digit percentage growth in both its Optum and UnitedHealthcare segments in the second quarter of 2021, and its strategic collaborations to enhance healthcare quality for its members, have helped the stock gain 32.9% over the past nine months. Also, it has outpaced its revenue and earnings estimates and lifted its full-year net earnings outlook from $17.35 to $17.85 per share.

As the company continues to focus on helping its members access healthcare and expand its care delivery networks, we think it should generate solid membership growth and maintain robust financial performance in the coming quarters.

Closing yesterday’s session at $409.17, UNH is trading just 3.9% below its 52-week high of $425.98. With the growing need for healthcare, we think the company’s technology-enabled health services and healthcare coverage should continue to witness a substantial uptick in demand in the coming months.

Click here to checkout our Healthcare Sector Report for 2021

Here is what we think could shape UNH’ performance in the coming months:

Bullish Analyst Sentiment

Analysts expect UNH’s EPS to increase 27.1% year-over-year to $4.46 in the next quarter, ending September 30, 2021. Its consensus EPS estimates indicate a 10% increase in the current year and a 15.1% increase next year. UNH has an impressive earnings surprise history; it beat the Street’s EPS estimates in each of the trailing four quarters.

A $281.28 billion consensus revenue estimate for the current year indicates a 9.4% improvement year-over-year. Also, its revenue is estimated to increase 8.3% year-over-year to $304.55 billion in 2022.

Industry Tailwinds

The rapid spread of the COVID-19 pandemic globally motivated people to consider healthcare benefit plans in seeking  adequate health protection. A substantial increase in total health expenditure and rebounding employment have led to a rise in health coverage. Furthermore,  health benefit providers are also expected to benefit from an aging population, which is more likely to qualify for government-sponsored healthcare programs and demand more health insurance coverage than young people.

As UNH continues to provide holistic protection against the high costs associated with medical emergencies, including COVID-19 testing and treatment costs, the company should see a rise in healthcare provision in the second half of this year.

Strategic Partnership

In May, Bassett Healthcare Network and UNH’s Optum formed a strategic relationship to advance the delivery of affordable and high-quality healthcare services for patients in Central New York. Optum will offer a broad scope of services, including advanced data and analytics, revenue cycle management, and other operational functions to enhance the patient experience. This collaboration should expand UNH’s ability to serve its patients across Central New York and position it for further growth opportunities in the healthcare sector.

Solid Financials and Profitability

UNH’s total revenue grew 14.8% year-over-year to $71.3 billion in the second quarter, ended June 30, 2021. The company’s Optum segment revenue was $38.3 billion, representing a 17.2% increase year-over-year. Its  UnitedHealthcare segment revenue came in at $55.5 billion, up 13% from the same period last year. In addition, its operating margin under its Optum segment was 7.5% for this quarter, compared to 6.8% in the prior-year period.

UNH’s 7.7% trailing-12-month EBIT margin is 486.5% higher than the 1.3% industry average. The company’s 5.3% and 21.4% respective trailing-12-month net income margin and ROE compare favorably with the  industry averages. Also, its 6.1% trailing-12-month levered free cash flow is 270.7% higher than the 1.6% industry average.

POWR Ratings Reflect Promising Outlook

UNH has an overall A rating, which translates to a Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. UNH has a B Sentiment Grade, which is consistent with analysts’ expectation that its revenue and earnings will grow.

Also, in terms of Stability Grade, UNH has an A. The stock’s relatively low 0.78 beta is in sync with this grade.

In addition, it has a B grade for Quality. This justifies the company’s higher-than-industry EBIT margin.

Click here to see the additional POWR Ratings for UNH (Value, Growth, and Momentum).

The stock is ranked #2 of 12 stocks in the B-rated Medical – Health Insurance industry.

If one is  looking for other top-rated stocks in the same industry with an Overall POWR Rating of A or B, one can access them here.

Bottom Line

UNH’s well-diversified growth across all business segments and continued strong membership growth should help the company strengthen its position in the healthcare market. In fact, a surge in the number of people buying health benefit plans should continue to drive demand for its healthcare coverage and benefits services. So, we think it could be wise to bet on the stock now.

Click here to checkout our Healthcare Sector Report for 2021

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