UnitedHealth: "Built for a Bear Market"

05/11/2020 5:00 am EST

Focus: HEALTHCARE

Richard Moroney

Editor, Dow Theory Forecasts

UnitedHealth Group (UNH) provides customers with health insurance — essential during the coronavirus pandemic, notes Richard Moroney, long-term growth expert and editor of Dow Theory Forecasts.

The stock also provides investors the bare necessities to ride out the bear market. UnitedHealth shares have held flat in 2020, while the S&P 500 Index has retreated 9%. The stock offers a solid dividend yield of 1.5% and a track record of generous dividend growth — at least 20% in each of the past 10 years.

The shares look cheap at 19 times trailing earnings, versus their five-year average of 21.5. Finally, the firm's growth prospects remain sturdy at a time when corporate executives are scrambling to slash or scrap their guidance.

Overall, the coronavirus downturn has not dampened UnitedHealth’s ambition for pushing further into ancillary businesses. In late April, the company entered advanced talks to acquire AbleTo, a remote provider of mental health services, for about $470 million. AbleTo is seeing higher demand during the pandemic.

Unlike most companies, UnitedHealth stands by its 2020 guidance, forecasting per-share profits of $16.25 to $16.55, implying 8% to 10% growth. The consensus profit estimate stands at $16.23 per share, leaving some room for upside.

Still, with millions of Americans losing their jobs in the past couple months, commercial insurers will likely face a drop in membership, while government-sponsored programs should see their ranks swell. Commercial plans account for 63% of UnitedHealth’s U.S. members, versus 23% for Medicare and 14% for Medicaid.

Looking back at the last recession, UnitedHealth’s membership base slipped 2% in 2009, with the commercial business shedding 7% of members, while its government business grew 13%. Total membership grew 3% in 2010, bouncing back above pre-recession levels. UnitedHealth is a Focus List Buy.

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