UnitedHealth Hits 52-Week High As It Recalibrates Business

The largest U.S. health insurer UnitedHealth Group Inc. (NYSE:UNH) touched a 52-week high of $136.15 on Jun 2, 2016. The rise in the stock was propelled by continued strength in the company's earnings and its recent exit from a number of exchanges. The exit is aimed at limiting its losses on individual insurance business written via public exchanges that would protect its earnings.

Over the past one year, the stock gained 17.5% in contrast to 17%, 12.2% and 8.4% that Anthem Inc. (NYSE:ANTM) , Humana Inc. (NYSE:HUM) and Cigna Corp. (NYSE:CI) lost respectively. A gain of 3.2% logged by Aetna Inc. (NYSE:AET) also looks paltry when compared with the leader UnitedHealth.

So what makes UnitedHealth stand out in the industry?

UnitedHealth’s already diverse business profile was made stronger by its recent business changes. These include the trimming of business on loss-incurring public exchanges, while focusing on segments that generate higher return on equity.

While this week UnitedHealth exited the California and Wisconsin exchange markets, it has already left or will be leaving the exchange markets in Alabama, Arizona, Arkansas, Colorado, Connecticut, Florida, Georgia, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Nebraska, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas and Washington.

The loss incurred by the public exchange line of business had prompted the company to trim its earnings forecast last year. The company had also commented that if it keeps on insuring individuals via exchanges it will continue to suffer huge claims which would mar its profitability.

The recent exit from unprofitable markets will put a bridle on the losses that the company has incurred from the individual exchange business. These moves have restored investors’ confidence in the company’s profitability.

UnitedHealth won investors’ favor by virtue of its strong earnings generation capability. The first quarter of 2016 maintained this trend with earnings of $1.81 per share surpassing the Zacks Consensus Estimate by 9 cents and improving 17% year over year. The improvement was backed by broad-based growth and a 54% increase in revenues from Optum, the health services business.

Increase in earnings estimates for 2016 also drew investors’ attention to the stock. UnitedHealth expects earnings of $7.75–$7.90 per share for 2016 instead of $7.60 to $7.80 projected earlier. The company expects revenues of approximately $182 billion for 2016 that translates into 16% year over year growth.

UnitedHealth carries a Zacks Rank # 2 (Buy).

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