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UnitedHealth (UNH) Hits 52-Week High: Is More Upside Left?

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On Jun 8, the stock of UnitedHealth Group Inc. (UNH - Free Report) hit a 52-week high of $251.50, but ended the day’s trading session at $250.68. The news of dividend hike, a new share buyback plan, and tie-ups with a laboratory and a diagnostic company must have led to the surge in the share price.

Catalysts in Detail

Investors viewed favorably UnitedHealth Group’s recent announcement to increase its quarterly dividend by 20% to 75 cents per share. The company’s current dividend yield of 1.24% is higher than 1.06% for the industry.  

UnitedHealth is all the more attractive given lower dividend yields for the companies in the same space. For instance, Aetna Inc. (AET - Free Report) , Humana Inc. (HUM - Free Report) and Cigna Corp. (CI - Free Report) currently have a dividend yield of 1.14%, 0.69% and 0.02%, respectively.

UnitedHealth has been increasing dividend every year since 2010 by a good double digits. The company’s share buyback and dividend increase history till now reflects its strong balance sheet and success in generating substantial free cash. With the recent move, the company has maintained its tradition of rewarding its shareholders thus cementing their confidence in the company.

The board also renewed the company’s share repurchase program, authorizing the purchase over time of 100 million shares, or approximately 10% of shares outstanding. This board action replaces the June 2014 authorization, under which there were approximately 29 million shares remaining as of May 31, 2018.

Late last month, UnitedHealth Group struck two long-term deals with laboratory-services companies Quest Diagnostics Inc. and Laboratory Corp. Via these agreements the insurer intends to control  soaring medical costs, since the payment for services to these labs will be made on the quality of the service provided compared with earlier mode of payment on the basis of quantity of service.

These agreements will also enable UnitedHealth to utilize patient’s data available at these labs to provide more specific services to its customers.  

Other factors that have led to a consistent rise in the company’s share price are its strong first-quarter earnings and 2018 earnings guidance increase, as well as the acquisition of Empresas Banmédica, a Chilean company, early during the year.

In a year’s time, the stock has gained 40% compared with the industry’s growth of 33%.

Further Upside Left?

The company strong fundamentals featured by its vastly diversified operations, a strong balance sheet and growing membership should drive revenues and earnings going forward. The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 0.7% upward over the last 60 days which reflects analysts’ optimism.

Moreover the stock carries a Zacks Rank #2 (Buy) and a Value Style Score of A. Our research shows that stocks with a Value Style Score of A or B when combined with a Zacks Rank #1 or 2 offer the best opportunities in the value investing space. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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