Analysts Offer Positive Prognosis For UnitedHealth After Investor Day

UnitedHealth Group Inc UNH plummeted ahead of Tuesday’s investor day and failed to recover throughout the session. However, analysts walked away from the presentation more bullish on the stock.

“The investor day reinforced our thesis that we believe EPS visibility is high for UNH given the underlying market growth, the diversification of the company’s revenue, exposure to the high-growth Optum business and sound capital deployment,” Mizuho Managing Director Ann Hayes wrote in a report.

Biggest Takeaways From UnitedHealth's Investor Day

UnitedHealth’s guidance mostly aligned with analyst expectations, but big picture details caused a stir. Mizuho was particularly enthused about Medicaid and Medicare Advantage growth. Medical membership growth is expected to be driven by government rather than commercial accounts in 2020.

Bank of America noted the company is well positioned to seize synergies across its health plan, pharmacy benefit management, technology capabilities and physician network.

“Although it doesn’t happen everywhere, the opportunity is clear and should allow UNH to continue to grow EPS 13-16% over the next few years (at least) as they differentiate themselves in an increasingly competitive market,” analysts led by Kevin Fischbeck wrote.

They expect developments in OptumRx and OptumInsight to drive further momentum.

“The most bullish part of the story is OptumHealth (the company expects rev growth up to 30% in 2020) due the ability to expand services and deepen penetration into existing markets,” Bank of America wrote.

Earnings Implications For UnitedHealth

Bank of America forecasts double-digit growth, and UBS agrees.

“We sensed a renewed focus on unit cost management moving forward likely as a result of normalizing utilization trends,” UBS analyst Whit Mayo wrote. “We expect that UNH should be able to sustain its 13-16% long-term EPS growth with heightened focus on driving at-unit costs vs. prior years.”

UnitedHealth attributed unit-cost management to its adoption of value-based contracting and out-of-network reference-based pricing, but UBS suggested success depends on employer and physician engagement to direct enrollees toward the lowest-cost care setting. “Ultimately the cost trend impact from these efforts is highly dependent on networks and physician behavior,” Mayo wrote.

Notably, management raised its outlook for its medical loss ratio (MLR) attributable to a higher mix of new Medicaid patients, but Bank of America dismissed the concern as immaterial to earnings.

The Ratings

  • Bank of America maintained a Buy rating and a $305 price target;
  • Mizuho Securities maintained a Buy rating and $300 target;
  • UBS maintained a Neutral rating but raised its target from $257 to $279.

“UNH's ability to leverage Optum to control costs and coordinate care drives unique differentiation vs. peers,” Mayo wrote.

“We think UNH’s technology and digital capabilities are key competitive differentiators,” Hayes wrote. “Other areas of intense focus were site of care and OptumCare. We expect OptumCare to be a key focus for M&A going forward, especially expanding in primary care, specialty pharmacy, infusion services, behavioral services and home services.”

UnitedHealth's stock traded around $279.53 per share at time of publication.

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Posted In: Adam RonAnn HayesBank of America Merrill LynchCourtney FondufeJoanna GajukKevin FischbeckMizuho SecuritiesUBSWhit MayoAnalyst ColorPrice TargetReiterationTop StoriesAnalyst Ratings

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