United Health Might Be Bottoming But It’s Too Soon To Tell
United Health (NYSE: UNH) reported its Q4 revenue and earnings and caused share prices to rise. The rise was met with resistance, however, due to tepid guidance that did little to fan the flames of investor sentiment. The takeaway is that price action might be bottoming. The risk is that selling is not yet over and the market is setting itself up for another fall. Regardless of the near price direction, however, we like this stock and think it’s buyable even if now isn’t the right time to do the buying.
United Health OutPerforms In Q4
United Health put in a solid quarter to round out 2021 and is guiding for growth in 2022. The company reported $73.74 billion in consolidated income for a gain of 12.6% over last year’s 7.5% increase. The gains were driven by strength in both the core United Health segment and the newer Optum segment and beat the Marketbeat.com consensus by 120 basis points as well.
Moving down to the income and costs, the company reported an increase in the medical care ratio that was offset by other factors that led to an increase in both net and operating margins. The company’s net margin rose to 5.5% from last year’s 3.4% while the operating margin improved 300 basis points to 380. The bad news (good news?) is that margins are flat for the year but quarterly earnings are up YOY and better than expected. On the bottom line, the GAAP $4.26 is up 69% from last year while the adjusted $4.48 is up 13% and beat by $0.17.
Looking forward, the company is guiding for growth but there is a problem. The company reaffirmed the targets it set out last fall which are mixed in relation to the Marketbeat.com consensus estimates. The company is looking for revenue in the range of $318.50 billion versus the $317.5 expected by the market with the high end of the range for adjusted EPS falling short of the $21.65 consensus.
The Analysts Like United Health’s Outlook For Growth
The analysts like United Health despite the mixed guidance. The consensus rating of 22 analysts is a firm Buy with a price target of $500. This price target assumes 6% of upside for the stock and is steadily rising in the long and near term. The Marketbeat.com consensus rating is up 30% in the last year, 7% in the last 90 days, and a full 1% in the last month on a rising tide of sentiment. The last half dozen or so shout-outs have the stock trading well above the $500 level and closer to the recently set $575 than not. There have been no major commentaries released since the Q4 earnings were reported.
United Health’s Dividend Will Help Support Share Prices
United Health doesn’t pay a very large dividend but it is above the broad-market average and as healthy as they come. The company is paying out only 31% of its earnings and has a rock-solid balance sheet so there are no red flags to worry about. Instead, investors should focus on the high probability of the 13th consecutive dividend increase to be somewhere in the range of 10% to 20%.
Looking at the chart, there is a chance the stock could be gearing up for another move lower. Price action moved higher in the wake of the earnings report but hit resistance at the short-term moving average and now looks ready to plunge. The recent price action is a downtrend that is being confirmed by resistance at the short-term EMA. Assuming that this resistance holds, we see shares of UNH moving down to the $440 level and maybe lower.
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