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UnitedHealth Group (NYSE:UNH) Stock a Buy: Insuring Your Portfolio

Tuesday, August 25, 2020 | Sean Sechler
unitedHealth Group (NYSE:UNH) Stock a Buy: Insuring Your PortfolioThe healthcare industry sees trillions of dollars spent annually by people around the globe and continues to grow at a rapid pace. With so many people in need of companies that provide healthcare services, investing in stocks that play a key role in the healthcare system could certainly pay off in a big way. You can typically gain exposure to the healthcare industry in a few different ways including drug stocks, healthcare provider stocks, medical device stocks, and payer stocks. Each one of these options has its own unique set of advantages, but there’s one payer stock that has recently dipped that looks like a smart buy at this time.

UnitedHealth Group (NYSE:UNH) is the largest healthcare company in the world by revenue and is perhaps the strongest corporation in the entire sector. People require healthcare services more than ever thanks to the pandemic, and UnitedHealth could continue to grow substantially as a result. There are several great reasons why UnitedHealth stock is worth a look right now, let’s discuss them below.

Diverse Healthcare Business with Room to Grow

When you look at a company like UnitedHealth, its easy to understand why it is a true market leader that consistently outperforms its competitors. It is the largest health insurance company in the world and receives revenue from insurance premiums, fees, sales, and investments. The company offers a diverse business model and can be broken down into two major units, UnitedHealthcare and Optum.

UnitedHealthcare is the insurance side of this company. This segment is quite profitable and Q2 revenue increased by 1.1% year-over-year to $49.1 billion even though many people deferred medical care during the quarter. The great thing about buying a company that generates revenue from health insurance is that the premium payments are steady and consistent. It’s also worth noting that the company’s revenue in the public-sector and senior programs such as Medicaid and Medicare grew by 7% in Q2, with those programs adding roughly 600,000 members this year. UnitedHealthcare’s Medicare & Retirement revenues are expected to cross $105 billion by 2022, which is another positive sign for investors. Thanks to the pandemic, you have to imagine that more people are interested in spending money on health insurance going forward.

Optum is currently the fastest-growing part of UnitedHealth’s business and an important component of future earnings growth for the company. Optum saw its revenue grow by 16.6% year-over-year to $32.7 billion in Q2. It is a health services business that uses advanced data analytics and technology to help payers, care providers, employers, life science companies, and consumers. Optum assists health care providers with improving the health outcomes of patients and lowering costs and has huge potential going forward. Keep in mind that UnitedHealth insurance plans are being integrated into Optum services to create an industry-leading medical cost ratio, which is a brilliant strategic move for the company that could pay off.

Strong Dividend Growth

Dividend growth investors should be attracted to UnitedHealth thanks to its steady history of raising its payouts. For the last 11 years, the company has increased its dividends and that likely won’t be stopping anytime soon. When you are assessing a stock for dividend growth, you want a company that has long-term expected earnings growth, strong free cash flow generation, and a history of dividend growth. This stock has all three of those things, making it one of the more attractive options for dividend investors at this time.

The stock currently has a dividend yield of 1.62% and it would not be surprising to see a dividend increase sooner rather than later. UnitedHealth has a 1-year dividend growth rate (TTM) of 17.68% and has increased its dividend by a 24% rate over the past 5 years. With many companies cutting their dividends or at risk of doing so, the consistency with UnitedHealth’s payments is another big plus.

Upcoming Catalysts

With the election on the horizon, investors need to take into account potential catalysts for this stock that could send it higher. If Joe Biden ends up winning the election, you can expect a lot of reform in the healthcare system that will positively impact UnitedHealth’s revenues. Biden will be focused on improving the Affordable Care Act (ACA) and providing Americans with the opportunity to buy public health insurance similar to Medicare. That would be great news for UnitedHealth shareholders since a lot of UnitedHealth’s current revenue comes from Medicare programs.

There’s also the chance that the economy rebounds more quickly than expected, which is positive for UnitedHealth shareholders. If the job market improves and the economy looks strong, people will be more comfortable with spending money on health insurance plans. Both of these possible catalysts are worth keeping in mind going forward and provide another great reason why UnitedHealth could be a great buy at this time.  

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
UnitedHealth Group (UNH)2.9$334.640.0%1.49%19.22Buy$387.82
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