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