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.
- 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.
© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Ad Disclosure: The rate information is obtained by Bankrate from the listed institutions. Bankrate cannot guaranty the accuracy or availability of any rates shown above. Institutions may have different rates on their own websites than those posted on Bankrate.com. The listings that appear on this page are from companies from which this website receives compensation, which may impact how, where, and in what order products appear. This table does not include all companies or all available products.
All rates are subject to change without notice and may vary depending on location. These quotes are from banks, thrifts, and credit unions, some of whom have paid for a link to their own Web site where you can find additional information. Those with a paid link are our Advertisers. Those without a paid link are listings we obtain to improve the consumer shopping experience and are not Advertisers. To receive the Bankrate.com rate from an Advertiser, please identify yourself as a Bankrate customer. Bank and thrift deposits are insured by the Federal Deposit Insurance Corp. Credit union deposits are insured by the National Credit Union Administration.
Consumer Satisfaction: Bankrate attempts to verify the accuracy and availability of its Advertisers' terms through its quality assurance process and requires Advertisers to agree to our Terms and Conditions and to adhere to our Quality Control Program. If you believe that you have received an inaccurate quote or are otherwise not satisfied with the services provided to you by the institution you choose, please click here.
Rate collection and criteria: Click here for more information on rate collection and criteria.