Analysts Hike UnitedHealth Estimates, Had Good Vibes At Investor Day

• Shares of UnitedHealth Group Inc UNH have been volatile in 2015 and are up 15 percent year-to-date.
• Analysts tat BMO Capital Markets, Susquehenna and Stifel maintained their Outperform, Positive and Buy ratings on the company.
• Apart from the problems related to its ACA exchange business, UnitedHealth has a sound position and poised for robust growth, the analysts believe.

UnitedHealth’s Investor Day revealed that a majority of its businesses continue to perform well, with Medicare Advantage presenting the company an opportunity to drive multi-year earnings growth. The company, however, continues to face some challenges in its exchange-related business.

BMO Capital Markets

BMO Capital Markets’ Jennifer Lynch raised the price target on the company from $130 $138. The analyst mentioned, “The upward trajectory of star ratings, enrollment expansion aided by demographic tailwinds and an easing of funding pressure should all contribute to solid performance from the senior business.”

UnitedHealth’s 2016 revenues are expected to be driven by both Medicare and Medicaid, Lynch stated, while adding that the company’s Optum initiative is aiding in its efforts to modernize care delivery and its international revenues are also expected to grow over time.

“While public exchanges present the managed care sector with yet another reform related challenge, we believe UnitedHealth Group’s diversified platform is well positioned to grow earnings in 2016,” Lynch wrote.

Susquehanna

Susquehanna’s Chris Rigg maintained a price target of $150 on the company. The analyst noted that apart from issues relating to its ACA exchange business, UnitedHealth is experiencing robust growth and margin improvement in its healthcare segments and at Optum.

The company is taking steps like suspending marketing and reducing commissions in most markets to minimize losses in its ACA exchange products in 2016. UnitedHealth said it was not willing to sustain additional losses in this business in 2017.

Rigg believes that ACA exchange is not material to UnitedHealth’s earning growth and the company’s profits are likely to rebound quickly once it decides to exit the exchange related businesses.

Susquehanna has included cash EPS estimates to exclude non-cash amortization expenses relating to acquisition related intangible assets. Cash EPS estimates of $6.45 and $7.70 have been introduced for 2015 and 2016.

Stifel

Stifel’s Thomas Carroll maintained a price target of $148 on the company. The analyst believes that UnitedHealth is well positioned to grow in all its businesses, including Affordable Care products such as Exchanges. Carroll expects the company to deliver an EPS growth beat in 2016.

The EPS estimates for 2015 and 2015 have been raised from $6.00 to $6.45 and from $7.15 to $7.65, respectively, to reflect the company’s new reporting structure. The revised estimates exclude amortization of intangibles.