UnitedHealth Is A Dividend Grower I Want To Own
UnitedHealth Group (NYSE:UNH) is only the latest evidence that American healthcare and the industry that surrounds it is as strong as ever. And growing. The company just reported its Q3 results blowing past consensus estimates and creating a buying opportunity for investors. For some reason, better than expected wasn’t good enough and shares fell hard in the pre-market action. The stock opened at a one-week low but those low prices were scooped up by dividend-growth investors who recognized the opportunity for what it was.
UnitedHealth Group Growth Accelerates In The 3rd Quarter
UnitedHealth Group reported a solid quarter that showed not only growth from the prior year but acceleration from the prior quarter. Net revenue came in at $65.12 billion or up 7.9% from the last year. In terms of acceleration, revenue grew only 2.6% in the 2nd quarter and just shy of 7.0% in the 1st. GAAP and Adj earnings were both better than expected as well, about 12% each, but there is a caveat. While better than expected, EPS at both the GAAP and Adj level, are down about 10% from the prior year. The mitigating factor is that much of the decline is related to consumer aid and payment deferrals that are expected to have a declining impact in future quarters.
On a segment basis, both major operating groups UnitedHealth and Optum produced growth but it was centered in the Optum segments. Optum provides a wide range of services to the healthcare industry with revenues growing 21.4% in the quarter. On a segment basis, premiums grew by 7.3%, products 16.3%, services 3.7%, with all offset by a -24.7% decline in Investment & Other revenue, the company’s smallest segment.
Looking forward, the company is expecting strength to continue into the 4th quarter. Guidance for both revenue and earnings was raised to a range above consensus for the full year. This implies the consensus targets for both this year and next are too low.
UnitedHealth Group Is An Aggressive Dividend Grower
UnitedHealth Group is yielding about 1.5% with shares trading at $327 but that is not where the value lay. The company has a fortress balance sheet, a very low payout ratio, virtually unrestricted cash flow, and a 25% 5-year distribution CAGR. The value, if you haven’t guessed, lay in the strength of the payment and a very high expectation for double-digit distribution growth in the coming years. Even if distribution growth slows in the coming years it will still drive total returns for investors.
Looking at UNH’s 1.5% yield from the value perspective the stock is offering a bit of a bargain compared to the broad market which is averaging a 1.5% yield right now too. UNH is trading at only 20X the current consensus (19X the new guidance) and 17X next year’s the stock is slightly less expensive than the broad market average of 21.9X. The difference is the broad market S&P 500 isn’t in the same financial condition nor does it have the same outlook for distribution growth.
The Technical Outlook: This Is A Buying Opportunity In UnitedHealth Group
UnitedHealth Group broke above resistance and to a new all-time high just days before it reported earnings. The reported, better than expected but only just, sparked a mild correction that is turning into an attractive buying opportunity. We might see price action pull all the way back to the short-term moving average but I don’t see this stock falling much below the $310 to $315 range unless some other news comes out. Longer-term, UnitedHealth is a growing company in a well-supported industry, this stock is going to set new all-time highs again and very soon.
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