UnitedHealth Group, Inc.’s (UNH - Free Report) senior unsecured notes recently received rating action from A.M Best. The rating giant assigned Long-Term Issue Credit Ratings of “bbb+” to the $625 million 3.375% senior unsecured notes, due 2027 and the $725 million 4.25% senior unsecured notes, due 2047. A.M Best has maintained a stable outlook on these credit ratings.
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. In the last one year, the stock has gained 34% while the Zacks categorized Health Maintenance Organization (HMO) industry registered a 23% increase.
The rating agency expects UnitedHealth to repay the outstanding commercial paper borrowings and debt maturities in June and July, utilizing the proceeds from the latest offering. Moreover, the company is expected to reduce financial leverage below 40% by year-end 2017. The company is also likely to reduce share repurchases to balance the equity end of its capital structure. For the remainder of 2017, the company is anticipated to have nearly $2.73 billion of senior unsecured debt.
UnitedHealth’s financial flexibility is backed by its commercial paper program, parent company cash, subsidiary dividends and credit facility. In addition, its non-regulated operating earnings and cash flows have given it a competitive advantage. The company’s consistently strong earnings as well as solid contribution from Optum operations are also encouraging.
UnitedHealth’s financial leverage is likely to remain unchanged following the notes issuance. At the end of 2016, the company’s debt-to-capital ratio was 46%, higher than 2015, primarily due to expenses related to the Catamaran Corporation acquisition. Nonetheless, the company maintains a strong interest coverage of 12 times.
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, Inogen Inc. (INGN - Free Report) and Avinger, Inc. (AVGR - Free Report) . While Inogen sports Zacks Rank #1 (Strong Buy), the other two stocks hold a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
HCA Holdings delivered positive surprises in all of the last four quarters with an average beat of 10.16%.
Inogen delivered positive surprises in three of the last four quarters but with an average negative surprise of 49.08%.
Avinger delivered positive surprises in two of the last four quarters with an average beat of 4.35%.
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