Reports Q4 2019 results on Wednesday, January 15 before the open
Income expectation: $ 60.93 billion
The past three months have made a remarkable turnaround for & # 39; the world's largest health insurance company, UnitedHealth Group (NYSE :). After having been in a bearish spell for most of last year, shares rose by more than 30% in the last quarter. Can this rally continue, or should we look for signs that the stock is losing its momentum?
In our opinion, two factors contributed to this sharp recovery that took place, even though the political environment remains hostile to healthcare providers in the US
First, UnitedHealth has consistently demonstrated that sales are strong and that it is well on track to improve profitability. In its previous report, the company strengthened its profit forecast for 2020 when the revenue growth of its health services and insurance broadened its outlook.
David Wichmann, CEO of UnitedHealth suggested in October with an analyst that the adjusted growth in earnings per share could be between 13% and 16%. That implied the center of Wichmann's profit range met investors' expectations, especially after solid results for 2019.
Political risk & # 39; s
In the midst of this strong earnings momentum, investors have begun to ignore the political risks of the 2020 presidential campaign. UnitedHealth shares suffered heavily in the first half of last year, while some prominent Democratic candidates campaigned for an overall overhaul of the American health system.
The "Medicare for All" campaign could eliminate most private insurance policies in favor of a government plan and create price pressure throughout the healthcare sector. It appears to be a very ambitious company and does not have much chance of passing quickly, but it can keep investors away and make the stocks depressed.
It is the preferred policy of Massachusetts Senator Elizabeth Warren, who is currently one of the leaders of the Democrats. Even the relatively moderate public options proposed by candidates such as former vice president Joe Biden would decrease market share from insurers and put pressure on profits, according to a Bloomberg analysis.
But in the past quarter, investors began to ignore this uncertainty about political and health policies, while shifting their focus to cash generation and the defensive nature of the company. In our opinion, the higher movement has probably had its course, unless the caregiver still produces an outburst quarter on Wednesday.
After huge profits in the last three months, the analyst community does not see much benefit in the UNH shares from here. The shares, which were traded at $ 285.85 at the end of yesterday, after a drop of more than 3% during the session, are close to the 12-month price target of $ 322.52 for analysts.
Bottom Line
Shares from UnitedHealth offer investors a comparison with a high risk return, where a strong company with an enormous amount of money could come under pressure if the Democrats win the American elections and insist on health care reforms.
Investors who bought UNH shares during the dip in October are in a good position to hold onto their positions, but for those who are wondering if they want to buy now, waiting on the sidelines is probably a Better strategy at the moment unless the stock weakens again and offers a good entry point.
