Stockchase Opinions

Alan Kral , CFA, CIC UnitedHealth Group Inc UNH-N DON'T BUY Apr 21, 2009

Political environment for health insurers is going to be very clouded. Insurance companies are going to be the whipping boys for the reforms that are going to come. They are going to be tough.
$22.800

Stock price when the opinion was issued

medical services
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BUY ON WEAKNESS

Is down 20% in 6 months and trades at 6.5x EBITA vs. 12x historically, strong managers, $20 billion free cash flow and new share buybacks.

HOLD

Leader in the space. Trades at 16x forward PE, 11% growth. Last 5 years, earnings have growth 12% a year. 200-day MA trending higher, but price is a bit below that, so technical signals are neutral. Integrated model strong. Pricing power. Down 24% from recent highs on regulatory concerns, overdone.

BUY

Near term, this can't trade at prior multiples given volatility. Anything healthcare is uncertain. He still believes in the $600 price target. Great management. They have growth.

BUY ON WEAKNESS

Is up 10% in the past month. Don't chase a red hot stock, but let it come in a bit (lower). Every time this spikes, it goes down. It's best of breed.

BUY

It reports Thursday. Not too high of a PE and not overly loved and purely domestic. It has pricing power.

BUY ON WEAKNESS

Down today, so an opportunity. The largest health insurer can do anything it wants under this presidency.

DON'T BUY

Has plunged 22% since reporting last Thursday and dragged the sector down. What in the world happened? They missed top and bottom lines, but worse they cut their full-year earnings forecast by 12%, citing high medical costs in its Medicare plans. The health profiles of many patients has been inaccurate., especially in their managed care business. Their medical care ratio was 84.8% in Q1 2025, but they guided full year at 87.5%. However, UNH's peers are faring better. UNH is having execution problems and is no longer best of breed.

TOP PICK

Fallen angel. Disappointing quarter, severely lowered guidance for 2025. 80% of its business is healthcare insurance. Taking market share in every segment they operate in. Funding pressure on government-funded healthcare insurance is curtailing short-term profitability; but this is building long-term value for shareholders. Secular trends of demographics and morbidity in the US are tailwinds. 

Fortress-like balance sheet, A+ credit rating. Buying back shares prolifically with FCF. Trading at 15x PE vs. the 5-year average of 19.5x. Yield is 1.97%.

(Analysts’ price target is $553.00)
BUY ON WEAKNESS

It will be under pressure for some time and he's been very negative on this stock, but at $400 you can start a position on it.

BUY

Good entry point for long-term hold; potential generational buying opportunity. Reason for the drop is that they were classifying clinic patients as less sick than they actually were. Resulted in recouping less revenue, to the tune of ~$500 per month per patient, amounting to ~$3+B. Keep an eye on how quickly this amount is recovered. Yield is 2.1%.

Be mindful that this doesn't turn into a bigger problem of something fundamentally changing in the ever-evolving US healthcare system. Facts could change.