UnitedHealth Seems Curiously Undervalued Given Multiple Growth Drivers

In a business where scale is king UnitedHealth (NYSE:UNH) has all the scale that an investor could ask for and more. What’s more, the company has actively built and pursued attractive growth opportunities outside of its traditional (and more heavily regulated) medical insurance/benefits business, including its OptumHealth provider business, OptumRx PBM, and OptumInsight analytics/information systems businesses.

I like where UnitedHealth sits going into 2023. Normalization of healthcare utilization will be a modest headwind, but the company’s vulnerability to inflation and a potential recession are quite modest, and higher rates benefit the business. On top of that, the company still has opportunities to drive growth from its OptumHealth and Medicare Advantage businesses. While there are some challenges on a straight P/E-based valuation, I do think these shares are undervalued on a longer-term core earnings basis.

 

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UnitedHealth Seems Curiously Undervalued Given Multiple Growth Drivers

Seeking Alpha: With Medicaid And ACA Squared Away, Anthem Needs To Work On Medicare

One of the giants of the health insurance space, Anthem (NYSE:ANTM) does a lot of things well. The company has leveraged its experience in small group underwriting to become the most profitable public exchange player and its acquisition of Amerigroup established a leading position in Medicaid. Although Anthem remains a good commercial insurer, its weak performance in Medicare Advantage (or MA) is a notable weakness and likely a priority target for management over the next few years.

The ACA hasn't really hurt Anthem, nor other large players like UnitedHealth (NYSE:UNH), Aetna (NYSE:AET), and Humana (NYSE:HUM) and I see little remaining risk there unless political and legal maneuverings threaten to utterly overturn the system. The biggest question I see for Anthem then is how they go about improving their MA positioning - will this be a slow, mostly organic, multiyear process, or will the company look to scoop up Humana? I don't see a lot of undervaluation in these shares today unless it can grow behind a mid-single digit rate, but I think it is a reasonably solid core holding with upside to an improved MA position down the road.

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With Medicaid And ACA Squared Away, Anthem Needs To Work On Medicare

Seeking Alpha: Good Execution Continuing To Boost UnitedHealth

UnitedHealth (NYSE:UNH) is the biggest player in managed care and, in my opinion, the best-run. Management has not only established a long history of "under-promise, over-deliver", but has built up a strong technology infrastructure that allows the company to price risk better, coordinate care more efficiently, and drive consumer behavior. Optum remains a real growth opportunity, as does international expansion.

The entire managed care space had a pretty good 2014, with stocks like Anthem (NYSE:ANTM) up more than 60%, Humana (NYSE:HUM) up nearly 60%, and Health Net (NYSE:HNT) up 65%. Only in that context is UnitedHealth's 50% appreciation over the past year something that might rankle investors. Health care, and by extension managed care, is likely to remain a controversial political topic in the years to come and UnitedHealth isn't particularly cheap right now, but I wouldn't be in a big rush to sell.

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Good Execution Continuing To Boost UnitedHealth

The Motley Fool: Obamacare and Medicare Advantage - How WellPoint Could Outperform

Large managed care provider WellPoint (NYSE: WLP  ) is proof positive that when you stop shooting yourself in the foot you will often have an easier time of walking. WellPoint's operational turnaround is still a work in progress, but there has definitely been progress and the Street has taken note – pushing the shares up almost 36% over the past year and making it one of the better-performing companies in the sector. With management now running a strong Medicaid business and turning its attention to Medicare Advantage while projecting profits from its public exchange business, things are looking up for the company.

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Obamacare and Medicare Advantage: How WellPoint Could Outperform

The Motley Fool: Time to Buy a Stumbling UnitedHealth Group, Inc?

Good companies may stumble, but they seldom ever fall flat on their face and so it seems with UnitedHealth (NYSE: UNH  ) . There were some concerns about the company coming out of the first quarter, but while the stock is not leading the group it is also not lagging by much. Price competition and enrollments always merit watching, but the Optum platform and the company's expansion into Brazil continue to offer some boosts to growth.

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Time to Buy a Stumbling UnitedHealth Group, Inc?

The Motley Fool: Can Express Scripts Holding Co. Beat Expectations Again?

Pharmacy benefit management company, or PBM, Express Scripts (NASDAQ: ESRX  ) has done quite well for investors in the past, but Wall Street is less confident about the future. Analysts are skeptical that, with the large advances already made in the shift to generics, Express Scripts can leverage formulary design, producer discounts, mail delivery and other drivers to continue generating double-digit free cash flow growth.

That skepticism could work in investors' favor, though, as Express Scripts looks like one of the relatively few meaningfully undervalued large health care companies.

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Can Express Scripts Holding Co. Beat Expectations Again?

The Motley Fool: Humana Inc.: The Way To Play Medicare Advantage

If you want to play the graying of America, Humana (NYSE: HUM  ) is a name to consider. This managed care provider may be as close as you can find to a pure play on Medicare Advantage, as this program is more than two-thirds of the company's earnings base. At the same time, Humana has joined Aetna (NYSE: AET  ) and WellPoint (NYSE: WLP  ) as the most aggressive participants in the new public exchanges.

Humana apparently isn't afraid to take on risk, as Medicare Advantage rates have become a great deal more uncertain and nobody really knows how the new Obamacare-mandated exchanges are going to work out. Humana looks about as undervalued as Aetna or Cigna (NYSE: CI  ) and could be priced to generate some solid long-term returns, but investors have to be comfortable with the risks and uncertainties that go with such a large commitment to the Medicare Advantage program.

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Humana Inc.: The Way To Play Medicare Advantage

The Motley Fool: CIGNA Corporation's Diversification Should Deliver Above-Average Growth

Cigna (NYSE: CI  ) is an odd duck in the managed care world. Managed care is certainly about managing costs, but it is also about pricing risk; Cigna's approach appears to be avoiding risk when possible, as the company has the smallest risk-based premium business of the major managed care companies. Not unlike UnitedHealth (NYSE: UNH  ) , Cigna is looking to a diversified array of businesses, including international expansion, to help fuel growth. Also, very much unlike Aetna (NYSE: AET  ) , WellPoint (NYSE: WLP  ) , and Humana (NYSE: HUM  ) , Cigna has chosen to be quite cautious with its initial forays into the Obamacare exchanges.

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CIGNA Corporation's Diversification Should Deliver Above-Average Growth

The Motley Fool: Aetna Inc. Has Bold Ambitions In A Changing Health Insurance World

Not to belabor the point, but the Affordable Care Act (perhaps better known as "ObamaCare") is going to change the health insurance market in some pretty significant ways – even though the actual percentage of uninsured Americans isn't/wasn't as large as many people guess. In any event, Aetna (NYSE: AET  ) is approaching this new environment rather boldly. Not only has Aetna put other insurers like UnitedHealth (NYSE: UNH  ) to shame with its participation in health care exchanges, but the company has openly targeted double-digit top and bottom-line growth on a long-term basis.

I do believe Aetna's reach exceeds its grasp. The good news is that the Street isn't fully buying the story either, and actually seems to be undervaluing even a more modest outlook. I expect plenty of noise and turbulence over the next year or two as the sector adapts to the new operating environment, but Aetna looks intriguing right now.

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http://www.fool.com/investing/general/2014/01/08/aetna-inc-has-bold-ambitions-in-a-changing-health.aspx

The Motley Fool: WellPoint - Can New Leadership And A Big Acquisition Turn This Laggard Around?

The uncertainties created by the Affordable Care Act (the ACA or "Obamacare") have affected all of the players in the space, leading to a drive toward consolidation and scale through acquisitions for Aetna Inc.  (NYSE: AET  ) , Cigna Corporation (NYSE: CI  ) , and WellPoint, (NYSE: WLP  ) . But not all of WellPoint's problems can be blamed on the ACA. WellPoint struggled operationally under the tenure of now-former CEO Angela Braly and finds itself in need of self-repair at a time when others like UnitedHealth Group (NYSE: UNH  ) can use their cash flow to fund acquisitions outside of the U.S. regulated managed care space.

While WellPoint has been the laggard of the "big four" over the past two and five years, it is not as though the company's performance has been disastrous. UnitedHealth is up about 45% over the last two years and Aetna is up about 55%, while WellPoint's shares have risen about 35%. WellPoint still has meaningful scope to tighten up its operations and drive synergies from its large acquisition of Amerigroup, and while the ACA has added a lot of unknowns to the model, the company's conservatism in these early days is likely to mitigate that risk. I don't see quite the same potential in WellPoint shares as I do from UnitedHealth, but there's still enough here to be worth some consideration.

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http://www.fool.com/investing/general/2013/12/26/wellpoint-can-new-leadership-and-a-big-acquisition.aspx

The Motley Fool: UnitedHealth Ready for the Storm -- and Long-Term Success

There's little doubt that the next couple of years will be "interesting" for UnitedHealth (NYSE: UNH  ) . This giant health insurance, benefits, and health technology company has built its way to the top of the heap through strong management, ongoing M&A, and substantial reinvestment in the business, but the arrival of the Patient Protection and Affordable Care Act (commonly referred to as "Obamacare") is going to significantly change the way health insurance markets operate for UnitedHealth and large peers like WellPoint (NYSE: WLP  ) , Aetna (NYSE: AET  ) , and Cigna (NYSE: CI  ) . While most of the panic has worn off, investors may yet have a worthwhile long-term opportunity in this health care giant.

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UnitedHealth Ready for the Storm -- and Long-Term Success

Investopedia: WellPoint Cheaper Than UnitedHealth, But The Risks Are Higher

The managed care world is still quite unsettled as the industry prepares for the post-Affordable Care Act world. While a government-mandated floor on medical expenses will put a greater premium on the operating leverage of the largest players, nobody quite knows for certain what participation in state exchanges will mean for enrollment, premiums, and profits.

That's the world that companies like UnitedHealth (NYSE:UNH), WellPoint (NYSE:WLP), Aetna (NYSE:AET), and Cigna (NYSE:CI) all face. But there's more on the table for WellPoint, as years of questionable execution have led to underperformance in terms of both financials and stock market performance. With a new CEO, a strong base in individual and small group plans, and a low bar, can WellPoint deliver on what looks like an otherwise unfairly large discount to its peers?

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http://www.investopedia.com/stock-analysis/060313/wellpoint-cheaper-unitedhealth-risks-are-higher-wlp-unh-ci-aet.aspx

Investopedia: Uncertainties Keep UnitedHealth In Value Territory

Leave aside the political debates about the Affordable Care Act (aka “ObamaCare”), and it's still very clear that a huge change is coming for the U.S. health insurance market. As the largest player in that market, that means huge change is coming for UnitedHealth (NYSE:UNH) as well. While the company's incredible operating scale, PBM and healthcare IT operations, and overseas expansion do mitigate some of the risk, the sizable uncertainties regarding how these changes will impact real profits have kept these shares in value territory.

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http://www.investopedia.com/stock-analysis/053013/uncertainties-keep-unitedhealth-value-territory-unh-wlp-aet-hum.aspx

Investopedia: Bull Vs. Bear - Wall Street May Like A Republican President

Question: Would Wall Street love or hate a republican president?
Love Side
No matter what an investor's personal leanings and preferences are, it's always helpful to evaluate each side of a binary outcome, and the upcoming Presidential election is very definitely a binary outcome - either a republican or democrat will win. With that in mind, it is useful to consider which industries/sectors may do well under four years of a republican administration. Although data suggests that the stock market does better during democratic administrations, there are, nevertheless, sectors that seem likely to do well (or better) under a Romney administration.

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http://www.investopedia.com/stock-analysis/2012/Bull-Vs.-Bear---Wall-Street-May-Like-A-Republican-President-1015.aspx

Investopedia: Assurant Seems To Be Baking In Much Tougher Times

There can be a lot of money in targeting specialized insurance markets, as there's often less competition and substantial rewards for building up expertise in underwriting. It's a strategy that has served companies like Berkshire Hathaway (NYSE:BRK-A, BRK-B) and W.R. Berkley (NYSE:WRB) pretty well. In the case of Assurant (NYSE:AIZ), though, analysts are taking a generally dim view of this company's ability to continue growing premiums and maintaining a profitable combined ratio. While the stock is not especially interesting if the bearish predictions are in fact accurate, financial outperformance could power a strong recovery in these shares.

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http://www.investopedia.com/stock-analysis/2012/Assurant-Seems-To-Be-Baking-In-Much-Tougher-Times-AIZ-WRB-CB-UNH0919.aspx

Investopedia: Investor Unrest Leads The WellPoint CEO To Resign

Investors who had been sharply criticizing WellPoint (NYSE:WLP) CEO Angela Braly got their wish on Tuesday afternoon, as Braly resigned both her position as CEO (which she had held since mid-2010) and chair of the board of directors (which she had held since early 2010). With WellPoint taking on both the challenges of the upcoming health insurance reforms and the acquisition/integration of Amerigroup (NYSE:AGP), it will be critical for the board to identify and hire a strong operator that can restore investor confidence in this floundering health insurance giant.

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Seeking Alpha: Coventry Makes Sense For Aetna

If at first you don't succeed in M&A, keep bidding until you do. That might be the mantra that Aetna (AET) followed, letting other players in the health insurance space pay more for other assets, but ultimately getting a pretty solid company of its own in Coventry Health (CVH). While there are certainly some risks in buying a health insurance company about two months away from the U.S. presidential election, the long-term logic of the deal seems likely to hold.

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Coventry Makes Sense For Aetna

Investopedia: WellPoint Buys More Medicaid Exposure

Funny how a Supreme Court ruling can change strategic priorities. Not all that long after management stated that it had no plans to expand its Medicaid business, WellPoint (NYSE:WLP) announced Monday that it was acquiring Medicaid managed care company Amerigroup (NYSE:AGP) in a nearly $5 billion deal. Not only does this deal look as though it can be very accretive over time (even with a 43% premium), but it arguably represents a best-of-breed buyout in a sector that could soon see more activity.

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http://stocks.investopedia.com/stock-analysis/2012/WellPoint-Buys-More-Medicaid-Exposure-WLP-AGP-MOH-CNC0709.aspx

Seeking Alpha: More Non-Core Investments Almost Certain For WellPoint

Although the sell-side community seemed surprised by WellPoint's (WLP) decision to acquire 1-800 Contacts, it seems likely to me that there are going to be quite a few more deals like this in the future. Health insurance companies (or managed care organizations, if you prefer) are realizing what banks realized long ago - there's just not enough growth in the core market to meet Wall Street's bottomless appetite.

Consequently, growing those businesses that lie outside of regulatory authority is one of the few options left, and it's one that I expect WellPoint and Unitedhealth (UNH) will pursue as aggressively as shareholder sentiment will tolerate.

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More Non-Core Investments Almost Certain For WellPoint

Investopedia: Will UnitedHealth's Cost Trends Cooperate?

Health insurance stocks like UnitedHealth (NYSE:UNH) are a good bet to stay volatile as the Supreme Court considers its opinion on sweeping changes to the healthcare insurance industry. While this ruling will clearly impact the future trajectory of enrollment and medical costs, it seems relatively safe to assume that UnitedHealth will adapt with the circumstances and remain a leader in this large industry.

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