Our UnitedHealth Group Stock Prediction In 2019 (Buy or Sell?)
The U.S. health care sector is a money monster. Think of it as the “medical-industrial complex,” a cash-generating machine that resembles the partnership between the Pentagon and defense contractors. The numbers tell the story.
Total health care spending in the U.S. in 2018 exceeded the gross domestic product of many countries, including Brazil, the United Kingdom, Mexico, Spain, and Canada.
Federal government statistics reveal that Americans spent $3.65 trillion on health care in 2018, an increase of 4.4% over 2017. That translates to $11,121 per person, by far the most among developed countries. Experts estimate an average annual growth rate of 5.5% from 2018 to 2027.
Poised to greatly benefit from the health sector’s multi-year boom is UnitedHealth Group (NYSE: UNH).
With a market cap of $246.8 billion, UnitedHealth is the largest health insurance company in the U.S. By revenue ($226.2 billion in 2018), it’s the largest in the world.
Is UNH a good buy now? Or will economic slowdown and political pressure weigh on the stock? Let’s take UNH’s temperature.
What Is UnitedHealth Group?
UnitedHealth Group is a health care industry colossus. The UnitedHealthcare division provides consumer health plans for private and public employers of all sizes. It offers specialized coverage for seniors, including preventive and acute health care services and for chronic disease. The division also administers Medicaid plans and the federal Children’s Health Insurance Program.
The OptumHealth division is where you find networks of specialists, health management services, consumer engagement, and financial services.
The OptumInsight division is the tech and IT side, which provides software and information products, consulting, and outsourcing contracts to hospitals, life sciences companies, physicians, health plans, governments, and other organizations. The OptumRx division provides pharmacy care services.
UnitedHealth Group subsidiaries together serve about 115 million individuals. In this video, UNH CEO David Wichmann discusses the company and the major health sector trends that affect its various business segments.
How Has UnitedHealth Group Stock Performed?
As with the health care sector overall, the stock has moved up and down depending on the health policy debate in Washington, DC. Despite political-driven volatility, UnitedHealth Group’s stock has consistently beaten the broader market over the long haul.
What Is UnitedHealth Group’s Stock History?
- Over the past 12 months, UNH has gained 14.3% whereas the S&P 500 has gained 4.4%.
- Over the past two years, UNH has gained 55.9% whereas the S&P 500 has gained 20.8%.
- Over the past five years, UNH has gained 215.2%, the S&P 500 has gained 52.4%, and the benchmark iShares Global Healthcare ETF (IXJ) has gained 36.6%.
How Has UnitedHealth Group Stock Performed In 2017/2018?
- In 2017, UNH gained 36.5% and the S&P 500 gained 19.4%.
- In 2018, UNH gained 11.4% and the S&P 500 lost 7.5%.
Who Are UnitedHealth Group’s Rivals?
UNH must contend with several giants in the industry, although their number is declining as consolidation continues apace.
Anthem (NYSE: ANTM)
With a market cap of $79.2 billion, Anthem is an influential health sector player with a well-diversified business base that includes government, individual, Medicare and Medicaid policies.
Anthem is a leading U.S. health insurer that offers Blue Cross/Blue Shield plans in 14 states. Anthem currently serves 40.2 million medical members through its affiliated health plans.
Anthem has a huge selection of network-based managed care health benefit plans. It offers these to just about everyone—individuals, groups, and Medicaid and Medicare users.
Most of the company’s managed care plans offer preferred provider organization (PPO) and health maintenance organization (HMO) options, as well as point-of-service plans, hybrid offerings such as consumer-driven health plans, and even just hospital-only plans.
Humana (NYSE: HUM)
Humana (market cap: $38.8 billion) operates through four divisions. The Retail division provides Medicare and supplemental benefit plans to individuals or through group accounts, and administers the federal Limited Income Newly Eligible Transition prescription drug plan program.
The Group and Specialty segment provides commercial medical and specialty health insurance benefits, along with financial protection products and administrative services.
The Healthcare Services division offers pharmacy solutions. The Individual Commercial division offers individual commercial medical health insurance benefits.
Centene (NYSE: CNC)
Centene (market cap: $24.7 billion) is a specialized company that focuses on under-insured and uninsured individuals.
Centene operates via two divisions. The Managed Care division offers health plan coverage to individuals but only through government subsidized programs, such as Medicaid. These plans include primary and specialty physician care, inpatient and outpatient hospital care, emergency and urgent care, prenatal care, and all the other services Obamacare demands.
The Specialty Services division provides Centene’s pharmacy benefit management (PBM) services. It also handles wellness and disease management services, correctional health care services, and home based primary care services. This division provides services to correctional facilities, and military service members and their families.
Will UnitedHealth Group Go Up In 2019 (Should You Buy)?
Investor and consumer moods are resilient right now and health and drug expenditures continue to soar. These conditions are manna for UNH.
The push for medical cost containment has been fueling consolidation in the health sector. Under the laissez-faire Trump regime, health care giants will have more freedom to join forces and foster economies of scale. Now that Obamacare has survived Republican attempts to kill it, health insurers such as UnitedHealth Group can look forward to a steady influx of new patients.
UnitedHealth’s greatest growth potential lies in the field of Medicaid, the federal-state program that provides health care for the poor. A major reform wrought by Obamacare is that millions of lower-income Americans without health coverage will qualify for Medicaid.
This Medicaid expansion started in January 2014, steering millions of new customers through the doors of Medicaid HMOs. UnitedHealth Group is the leader in the Medicaid HMO market and should see Medicaid revenue swell in future quarters.
With a strong balance sheet, an edge in the booming Medicaid business and optimistic earnings guidance for full-year 2019, UNH should withstand the market volatility that we’re likely to experience for the rest of this year.
UNH’s forward price-to-earnings ratio (FPE) is 15.4, roughly in line with the FPEs of its peers — Anthem (13.5), Humana (14.7), and Centene (12.1) — and lower than the S&P 500’s FPE of 17.5.
Will UnitedHealth Group Go Down In 2019 (Should You Sell)?
Even inherently strong companies can run afoul of unexpected headline risk, as we’ve recently seen with health services giant Johnson & Johnson (NYSE: JNJ).
Possible headwinds against UNH include a projected economic slowdown in 2019. When the economy goes south, consumers tend to put off needed health care.
Rising interest rates and anxieties over political dysfunction in Washington, DC also could weigh on consumers’ mood to spend.
What’s more, with Democrats now in charge of the House of Representatives, new legislation could come along to cap health care expenditures and impose regulations on health insurers.
Specifically, many Democratic representatives are pushing the concept of “Medicare-for-all,” which essentially would mean single-payer health care. If this idea comes to pass, it would wipe out most of the health insurance industry — and UnitedHealth Group with it.
Overall UnitedHealth Group Forecast And Prediction For 2019
One axiom of stock investing is to find a well-run company that provides products and services everyone will need into the foreseeable future.
Few necessities are as vital as health care. Add an aging population and expanded government insurance to the equation and selective health care stocks make solid long-term bets. Even if the economy dips in 2019, people still need to address their ailments.
As for the imposition of federal single-payer health care, that’s highly unlikely. At least for the next two years, divided government will produce little in the way of meaningful legislation.
The average analyst expectation is for UNH to generate year-over-year earnings growth of 13.4% next year. Over the next five years, earnings growth is expected to hit 15%, on an annualized basis.
If you’re worried about market volatility in 2019, UNH should provide much needed Rx to your portfolio.
John Persinos is the managing editor of Investing Daily.