UnitedHealth Group Inc. (NYSE: UNH) is in the midst of a consolidating industry, even while the beginning stages of health care reform have been underway. It is a Dow Jones Industrial Average component that has outperformed most stocks of late, but there is at least one concern about its valuation.
One analyst report does indicate that UnitedHealth may be fully valued. Other reports are not anywhere close to that conservative.
The independent research firm named Argus has a Hold rating. Their team raised earnings estimates, but noted that it believes the stock is fully valued.
Argus thought that UnitedHealth posted strong second-quarter results on July 17, but concerns remain about the risk of rising medical costs. Argus pointed out that Medicare and Medicaid segments are becoming a higher percentage of UnitedHealth’s business mix, and those segments typically have higher medical loss ratios than investors see in the company’s traditional commercial health insurance business.
Management now expects full-year earnings of $6.25 to $6.35 per share, versus a prior $6.15 to $6.30 per share range. Argus raised its EPS estimates to $6.28 from $6.22 for 2015 and to $7.15 from $7.10 for 2016. Still, Argus noted that at 17.3 times its 2016 EPS estimate, this is effectively at the high end of the range for the managed care universe.
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Again, not all analysts feel that UnitedHealth has peaked.
RBC Capital Markets has an Outperform rating, and the firm raised its price target to $166 from $159 on Monday. Barclays also has an Overweight rating, but its price target was raised to $142 from $140 on Monday.
Late last week brought on price target hikes with Buy-equivalent ratings from the likes of Credit Suisse, Oppenheimer, Wedbush Securities and Mizuho.
UnitedHealth shares were last seen down by 1% at $122.42 Monday afternoon, against a 52-week range of $78.74 to $126.05. It has a consensus price target of $145.50, and its current market cap dwarfs the rest of the health insurance players at almost $117 billion.
Is UnitedHealth now overvalued in a sector where all the planned mergers appear to already be underway? It depends on whom you ask.
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