Tailwinds Support UnitedHealth
Let's face it, the healthcare industry is growing and supported by government policy and that's why UnitedHealth Group (NYSE:UNH) is moving higher. That and the fact results are topping the analyst's estimates, the company keeps guiding the market higher, and the outlook for dividend growth is very positive. In our view, if you are looking for blue-chip quality dividend growth stock you could do far worse than UnitedHealth and for more reasons than one. UnitedHealth, as an insurer and services provider, is at the nexus where providers meet patients and well-positioned to make money from both.
UnitedHealth Group Beats And Raises Guidance, Again
As often as UnitedHealth beats the consensus and raises guidance we're beginning to sound like a broken record. Cliche's aside, UnitedHealth had not only a great quarter but one in which it beat its own guidance. The guidance they themselves raised following the last reporting period. The $70.2 billion in revenue is up sequentially by 7.6% and annually by 9.0% topping the analysis consensus by 160 bps YOY. The gains are driven by a solid improvement in both operating segments as well. The core UnitedHealthcare saw its revenue rise by 7.9% while the Optum healthcare services group grew 10.8%. The gain in both segments was driven by an increase in clients that, when coupled with lower healthcare claims, resulted in health bottom-line results as well.
Moving down the report the company delivered a 90 basis point improvement in margins. The companies operating cost ratio came in at 14.6% of revenue versus the previous 15.5% to produce a beat in terms of GAAP and adjusted earnings. At the operating level, cash flow increased by 104% from last year driving GAAP EPS up by 35% and adjusted by a similar amount. The GAAP $5.08 beat by $0.88 while the adjusted $5.31 beat by $0.92 to improve what was an already very bullish outlook for dividends and dividend growth.
Looking forward, the company is expecting its adjusted earnings in the range of $18.10 to $18.60 versus the $18.20 consensus held by the analysts. This is better than the previous guidance but still too cautious in light of 1) the company's 100% record of beating consensus and 2) the strength of healthcare trends in the U.S, and that doesn't include any boost healthcare may see when the reopening gets into full swing. There's a lot of pent-up demand for services and UnitedHealth Group is ready to facilitate them.
You Can Expect A UnitedHealth Group Dividend Increase Any Day
UnitedHealth Group is a high-quality dividend growth stock and it is expected to issue the next increase with the next distribution. Based on the history, 11 years of consecutive increases, the declaration should come in the 2nd quarter and could be worth upwards of 20%. Not only does the history back up this assessment but so does the earnings and balance sheet. The company is only paying out 27% of its earnings with earnings on the rise, ample free cash flow, and only very light leverage. The yield is a bit low at 1.35% but there are the growth and dividend-growth to consider, factors we think more than make up the difference.
The Technical Outlook: UnitedHealth Breaks Out To New High
Shares of UnitedHealth surged more than 4.0% on the Q1 news to break above resistance and set a new all-time high. Now, with the bulls in control, we see this stock moving up another $10 to $50 in the near term at least. The most recent analyst activity has the stock valued in the range of $430 to $450 which is in line with our assessment. Investors looking to get into this stock may want to begin with a small position and then pyramid into a larger holding when prices show weakness.
