Jefferies Sees Upside For UnitedHealth Group
Jefferies recently downgraded UnitedHealth Group (NYSE: UNH) from Buy to Hold, given the earnings outlook and high chance that the multiple stays flat at best.
UnitedHealth Group’s EPS growth of nine percent is below its peers at 11 percent. The note stated that in an optimistic scenario, the UnitedHealth Group’s EPS will top out at $6.20, which implies a 2015 growth of 11 to 12 percent, putting it equal with its peers.
UnitedHealth Group’s valuation is at a peer-high of 15 times, which is its highest level since 2007 despite its weaker EPS growth. UnitedHealth Group’s EPS growth multiple is set at 13.8 times for 2014-2015. Jefferies’ analysts said, “The current multiple is about as high as we think the company deserves given: 1) inferior 2014 EPS growth … and 2) 2015 EPS growth that will likely be consistent with peers’ 11% at best.”
Optum is growing, with a projected earnings growth of 20 percent, but there is a limit to how much it can help because it represents only one-third of earnings.
Jefferies' analysts set the EPS ceiling around $6.20 assuming continued buybacks, strong Optum earnings growth and flat YoY profitability in the United Healthcare segment in 2015.
Latest Ratings for UNH
|Jan 2017||PiperJaffray||Initiates Coverage On||Overweight|
|Dec 2016||Cantor Fitzgerald||Upgrades||Hold||Buy|
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