UnitedHealth: Healthy Outlook

03/05/2015 8:00 am EST

Focus: STOCKS

Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

I'd like to add a new stock recommendation to round out our investment in the exciting healthcare sector—the nation's largest health insurer—suggests Mark Skousen, editor of Forecasts & Strategies.

UnitedHealth Group (UNH) has seen a dramatic increase in its healthcare coverage since Obamacare passed. Revenues were up 7.4% to more than $130 billion in the past year, with earnings rising to $5.6 billion.

UnitedHealth is doing its best to stay ahead of the curve. It recently announced that it has switched 11 million customers from fee-for-service payments to accounts with accountable care organizations (ACOs).

And that number is expected to increase by 50% in 2015. United Health's subsidiary has contracts with more than 520 ACOs and expects to boost that number by 250 this year.

It is the latest push by UnitedHealth away from the traditional fee-for-service approach to medicine, which can lead to over-treatment and unnecessary medical tests and procedures. Value-based pay is tied to health outcomes, performance, and quality of care provided.

It is the latest push by UnitedHealth away from the traditional fee-for-service approach to medicine, which can lead to overtreatment and unnecessary medical tests and procedures. Value-based pay is tied to health outcomes, performance and quality of care provided.

The government announced preliminary 2016 Medicare Advantage rates. The Centers for Medicare and Medicaid Services (CMS) announced that rates charged to insurers won't rise more than 1%.

That decision was a relief to insurers like UnitedHealth, the largest health insurer in the country and a partner with AARP on a variety of key health initiatives.

Overall, UNH has a lot going for it: rising revenues and earnings. Earnings are expected to rise from $5.70 per share in 2014 to $6.20 in 2015. Net operating cash flow has significantly increased by 127.43% to $2.4 billion.

The debt-to-equity ratio (0.54) is quite low and below the industrial average. It has a return on equity (ROE) of 16.7%, with a rising dividend policy. The company currently offers a 1.4% yield with the likelihood that it once again will boost its dividend later this year.

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