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UnitedHealth's Upcoming Note Issuance Rated by A.M Best

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UnitedHealth Group Inc. (UNH - Free Report) recently received rating action from A.M. Best. The rating gianthas assigned a Long-Term Issue Credit Rating (ICR) of “bbb+” to the company’s upcoming senior unsecured notes of $1.5 billion. Along with this, A.M Best assigneda stable outlook on the ICR and kept the existing ratings of UnitedHealth and its subsidiaries intact.

The notes are planned to be issued in two tranches. The first $750 million of senior unsecured notes are due in Jan 2027 and the second $750 million of senior unsecured notes will mature as and when UnitedHealth pays down its outstanding commercial paper borrowings and dues regarding general corporate purposes.

The Zacks Rank #2 (Buy), Minnesota-based diversified health and well-being company has a healthy balance sheet with unparallel flexibility. UnitedHealth has a solid control on its debt level. In the last reported quarter, the company’s debt-to-total-capital ratio was 46.9%, down 200 basis points year over year. UnitedHealth estimates leverage ratio to fall to 40% range by the end of 2016. This has increased confidence among the shareholders. We note that shares of UnitedHealth have gained 36.5% year to date, significantly higher than the Zacks categorized Health Maintenance Organization (HMO) industry’s increase of 21.5%.

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These note issuances are expected to have no adverse impact on UnitedHealth’s financial leverage. The company has strong debt servicing capacity backed by significant interest coverage. Moreover, its ratio of goodwill plus intangibles to shareholders’ equity increased substantially following the acquisition of Catamaran in 2015, and exceeds 140%. The Catamaran buyout also favorably impacted the operating earnings of UnitedHealth’s OptumRx division.

UnitedHealth’s financial flexibility is highly supported by its commercial paper program, parent company cash, subsidiary dividends and credit facility. The company enjoys competitive advantage on its strong underwriting results and substantial amount of operating cash flows that provides it a strong position in the HMO industry.

Other Stocks to Consider

Investors can also look at other well-ranked medical sector stocks like WellCare Health Plans Inc. , Magellan Health Inc. and Humana Inc. (HUM - Free Report) .

WellCare sports a Zacks Rank #1 (Strong buy). You can see the complete list of today’s Zacks #1 Rank stocks here. The company delivered positive surprise in the last four quarters with an average beat of 40.01%

Magellan delivered positive surprise in three of the last four quarters with an average beat of 42.58%. It also sports a Zacks Rank #1.

Humana carries a Zacks Rank #2.  The company delivered positive surprises in three of the last four quarters with an average beat of 1.94%.

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