It's one of the strangest phenomena in all of trading; sometimes a company can do well enough to beat estimates, but that's still not enough to give the company much of an edge in trading. That's what happened to UnitedHealth Group (NYSE:UNH) recently as it not only brought in beats in earnings and revenue, but also offered a positive outlook on 2021, yet lost ground in early trading, much of which it recovered throughout the morning.
The Good News and the Bad News
There was a lot of good news for UnitedHealth as the company reported quarterly earnings of $2.52 per share, nicely above estimates of $2.41 established previously. Group revenues also rose in the quarter, coming in right around estimated totals. The company even managed to hold its 2021 profit forecast issued back in December, looking for full-year adjusted net earnings to run between $17.75 and $18.25.
Further good news came out of the company's circumstances. With so many procedures needing to be deferred for hospital and clinic shutdowns back in the early going of 2020, that left a lot of premiums going to not much at all, reports noted.
The bad news, however, was that pandemic-related costs did make for a hit in UnitedHealth's books. Treatment and testing costs, unemployment, and similar factors made for a loss of about $1.80 per share, reports noted, as the insurer worked to absorb losses therein. Yet even these losses represented an improvement; the fourth quarter saw what's known as a “medical loss ratio” of 79.1%. That compares well to the 82.5% seen a year ago. A “medical loss ratio” is the portion of user premiums paid out in healthcare costs.
Very Thinly Restrained Analyst Optimism
Meanwhile, based on our latest research, the analyst community is urging a “buy” in strong terms, though somewhat on the decline of late. The company currently has five “hold” ratings, 15 “buy” ratings and one “strong buy” rating to its credit, which is the same proportion of analysis that we saw a month ago. This sounds great, because it is, but oddly it's not as great as it was. Three months ago, there were four “hold” ratings and 20 “buy” along with one “strong buy.” Six months ago it was even better with just three “hold” alongside the 20 “buy” and the one “strong buy.” There hasn't been a “sell” recommendation on the stock in the last six months.
The consensus price target has been merrily climbing as well. Six months ago, it was at $338.46, before going to $346.68 three months ago. A month ago, it continued its upward cant to reach $380.55 before hitting $385.32, where it sits today. Interestingly, each price target represents upside potential, but a steadily decreasing upside, suggesting that we're getting close to equilibrium.
Health Insurance Is Usually a Good Buy
Buying in on an insurer is usually a pretty good buy for investors. The point that most of us who pay for insurance have long since realized is what makes the deal so good for those who own insurers: most of the time, we're paying for nothing. At best, we're paying for peace of mind. This is good news, as a whole; it's one of the few things we buy that we hope we never actually have to use.
This has been an unusual year for an insurer, and it's also not likely to be a year that's repeated in any significant way, so looking for future figures to turn out like these figures did is going to be a bad idea. There's little chance that hospitals will once again be required to shut down for coronavirus-related issues, so the hefty gains of unused premiums aren't likely to hit either.
But UnitedHealth is working toward building a future that's less focused on a single issue; one of the biggest new moves is a partnership with Amwell (NYSE:AMWL), which will ultimately build a virtual primary care system. This opens up the possibility for patients to connect to doctors with little or no co-pay cost for routine care options. Telemedicine optionshave been huge during the pandemic, and even as the coronavirus shows signs of retracting as new treatments and vaccines emerge, it's a safe bet that a robust telemedicine option in place will still be used.
The circumstances that gave UnitedHealth a great 2020 aren't likely to be repeated with 2021's arrival. However, UnitedHealth likely knows that as well, and has made plans accordingly to insulate itself and continue making gains accordingly. That's good news for investors, and anyone who picks up a piece of UnitedHealth will likely be able to enjoy the same kind of peace of mind that its primary product line provides.
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View the "20 High-Yield Dividend Stocks that Could Ruin Your Retirement Portfolio".