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UnitedHealth's (UNH) Senior Unsecured Debt Rated by Moody's

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UnitedHealth Group Inc. (UNH - Free Report) recently announced that its senior unsecured debt has been assigned an A3 rating by Moody's Investors Service, a wing of Moody’s Corporation (MCO - Free Report) . The senior unsecured debt is likely to be issued in two tranches – due Apr 2027 and Apr 2047. The outlook of the ratings was negative.

The new shelf registration will replace the previous one, which was to be effective from Feb 21, 2017. The previous shelf registration was also rated A3 by Moody’s.

UnitedHealth intends to utilize the net proceeds from the debt offering to repay commercial paper borrowings obligations and for other general corporate purposes, including the redemption or repurchase of outstanding securities or refinance of debt.

If the company manages to utilize the proceeds as planned, its indebtedness is unlikely to change considerably. We note that UnitedHealth’s financial leverage is higher than Moody’s expectations, which is likely to be the primary reason for the ratings assigned. The company intends to reduce its financial leverage to under 40% by year-end 2017. The company also plans to reduce share repurchases in order to balance the equity end of its capital structure. For the remainder of 2017, the company is expected to have nearly $2.73 billion of senior unsecured debt.

Moody's A3 senior unsecured debt rating for UnitedHealth and A1 insurance financial strength (IFS) rating of UnitedHealthcare Insurance Company (UHIC) are primarily driven by the company's strong national presence and brand name, large membership base, and diversified offerings. The company’s financial health is backed by consistently strong earnings, a well-diversified investment portfolio, and strong solvency.

UnitedHealth’s focus on effective debt management is evidenced by its healthy balance sheet. The company’s strong underwriting results as well as solid fundamentals have cemented shareholder confidence on the stock. Over the last one year, the stock has gained 37%, while the Zacks categorized Health Maintenance Organization (HMO) industry registered a 17% increase.

 

According to Moody's Investors Service, the company is unlikely to receive any upgrade on the assigned outlook in the near-term. Nonetheless, the outlook may return to stable if the company can undertake certain corrective measures. To this end, UnitedHealth requires a financial leverage ratio below 40%, EBITDA margins in the 9% range with interest coverage of at least 10x. Also, consolidated risk based capital (RBC) ratio needs to be at least 250% at company action level (CAL). However, the ratings can be further downgraded if UnitedHealth fails to fulfill these requirements.

Zacks Rank and Stocks to Consider

UnitedHealth presently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from medical sector include HCA Holdings, Inc. (HCA - Free Report) , and Avinger, Inc. (AVGR - Free Report) . Both of the stocks hold a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

HCA Holdings delivered positive surprises in all of the last four quarters with an average beat of 10.16%.

Avinger delivered positive surprises in two of the last four quarters with an average beat of 4.35%.

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