Making an industry leader part of your investment portfolio provides an overall stability and boosts profitability. Industry leaders by virtue of their dominant market position and robust balance sheet have higher capabilities to tide the economic swings and emerge unhurt. Thus, one should always keep such stocks at one’s disposal and if such a company belongs to a resilient industry such as health insurance then the degree of stability increases.
Today we will talk about the health insurance leader
UnitedHealth Group Inc. ( UNH Quick Quote UNH - Free Report) , which has gained 16.8% year to date compared with the industry's growth of 14.8%, and why buying this stock can be a good investment move.
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First of all, the company has an exemplary track record of earnings outperformance and a look at the last 28 quarters show surprises in each period. Though past performances do not guarantee future results but the same does give a great deal of insights into the company’s ability to successfully navigate the ups and downs in the economy and business cycles, its enterprise risk management and its business resilience.
UnitedHealth is a dynamic company, which has evolved constantly. Since the Affordable Care Act came into effect in 2010 and imposed a number of restrictions on health insurers. The company kept modifying and diversifying its business to align with the changes in the industry and has emerged successfully over the past decade. An investor holding its shares for the past 10 years would have lapped up a return of 766% compared with the S&P’s Index return of 288% over the same time frame.
UnitedHealth looks well poised for growth for the foreseeable future. Let’s analyze the reasons here:
A Well-Diversified Business: UnitedHealth is present across different verticals, right from selling its health insurance plans via its segment, UnitedHealthcare to other areas of health care, such as pharmacy management, information and technology-enabled health services business, ambulatory care systems etc. These services are provided by its unit named Optum. Most of the same has been built by making small and big acquisitions over the past several years. No other insurer matches the scale of diversification like UnitedHealth.
The company’s flourishing business will continue to propel its earnings. It is on a continuous hunt for acquiring the best-fitting entity that can add to its capabilities. With a successful integration track record, the company will be able to reap synergies from its judicious takeovers.
Large-Scale Presence in an Attractive Market: UnitedHealth holds the number one spot in the for-profit or private Medicare Advantage (MA) market with other players like Aetna, a unit of CVS, Anthem Inc. ( ANTM Quick Quote ANTM - Free Report) , Centene Corp. ( CNC Quick Quote CNC - Free Report) and Cigna Corp. ( CI Quick Quote CI - Free Report) following close.
UnitedHealthcare has the largest share of Medicare Advantage enrollment since 2010. Its share of Medicare Advantage enrollment has grown from 19% in 2010 to 27% in 2021. The MA market, which is the private version of the public Medicare plans, is expected to grow fast as it caters to the aging baby boomer population, which is growing each year. A large market share with many of its plans carrying star ratings should fetch the company impressive membership growth.
International Operations Augur Well: UnitedHealth is one of the few insurers that has presence outside the United States, which provides it with benefits of geographical diversification. Its global business continues to be an early-stage investment area and bodes well for the long term. Solid Growth Outlook: The company’s guidance raises enough optimism for the long haul. Its long-term earnings per share (EPS) growth view is projected at 13-16% per annum, on average, with about two-thirds (8-11%) of the same being driven by earnings from operations and one-third (3-5%) from capital deployment. Sturdy Capital Position: A consistent favorable cash flow enables it to pursue growth strategies, such as buyouts and capital management via dividend payments and share buybacks. The current dividend yield is 1.36%, which has grown at 25.16% rate per year for the past 10 years. With a payout ratio of 30%, dividend growth is well-cushioned by the company’s robust earnings. Bottomline
The stock currently carries a Zacks Rank #2 (Buy) and is sure to display a share price appreciation by virtue of its strong business and growth visibility. It should thus be part of one’s investment portfolio for solid gains. You can see
. the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here