UnitedHealth Group Inc. - Growth & Income

As more information about the impact of the health care overhaul unfolds, UnitedHealth Group Inc. (UNH) continues to deliver impressive results.

The company recently reported a strong third quarter in which earnings per share beat the Zacks Consensus Estimate by 36%. The company has delivered an average upside surprise of 33% over the last four quarters, leading analysts to raise their estimates significantly higher.

It is a Zacks #1 Rank (Strong Buy) stock.

Company Description

UnitedHealth Group operates several health and "well-being" divisions, but it's most well known is UnitedHealthcare - one of the largest health insurance companies in the United States.

It competes against other health insurers like Humana Inc. (HUM), Aetna Inc. (AET) and CIGNA Corp (CI).

The company is headquartered in Minnetonka, Minnesota and has a market cap of $38.6 billion.

Third Quarter Results

Earnings came in at $1.14 per share, crushing the Zacks Consensus Estimate by 30 cents. It was a 28% increase over the same quarter in 2009.

Total revenues were up 9.1% year-over-year driven primarily by an increase in premiums. Meanwhile, total operating costs declined from 92.3% of total revenue to 90.9% as the company successfully contained its medical costs.

Operating income was up a stellar 28.0%.

Outlook

Management stated in the third quarter earnings release that it expects to earn between $3.85 and $3.95 per share in 2010.

The Zacks Consensus Estimate for 2010 is currently above guidance at $3.98. This equates to 23% growth over 2009 EPS. The 2011 estimate is $3.67, 8% lower than 2010, but up from $3.52 90 days ago.

Dividend

UnitedHealth produces strong and consistent cash flow that it has recently been using to buy back stock and raise its dividend. The company significantly hiked its quarterly dividend in the second quarter of 2010 from 3 cents per share to 12.5 cents. It currently yields 1.4%.

The company has also spent a whopping $1.9 billion year-to-date repurchasing shares.

Valuation

The stock is cheap with shares trading at just 8.8x forward estimates, a significant discount to the industry average of 14.4x. Its PEG ratio is an attractive 0.9.

Its price to book ratio of 1.5 is also lower than its peers at 1.9.

Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.

 
UNITEDHEALTH GP (UNH): Free Stock Analysis Report
 
Zacks Investment Research