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UnitedHealth Worth Buying After Good Earnings Report, Says Bernstein
Reasons for Upgrading UnitedHealth
Bernstein analyst Lance Wilkes has upgraded UnitedHealth to an outperform rating from a market perform rating and increased the price target to $603. This upgrade is based on the company's recent good earnings report and its cheap valuation. Wilkes believes that UnitedHealth is a best-in-class managed care organization (MCO) and value-based care (VBC) company, offering a great growth opportunity at an attractive valuation. The concerns about valuation and rate pressures that led to a downgrade last year are now priced into the stock, making it undervalued and presenting a unique buying opportunity.
The Positive Earnings Report
UnitedHealth's second-quarter earnings report beat Wall Street expectations on both lines and the company also raised the low end of its guided range for full-year adjusted earnings. Overall, it was a solid print, according to Wilkes. The stock closed 7% up on Friday following the earnings report, defying negative expectations about rising medical costs.
Growth Potential and Low Valuation
Wilkes believes that UnitedHealth has the potential to experience price hardening in 2024, and sees attractive long-term growth in its value-based health care, government managed care, and innovation business Optum. The company's low relative valuation compared to the S&P 500 suggests that it is a good time to buy. UnitedHealth currently trades at a multiple of 0.9, near the lows of 0.85 seen during discussions about Medicare-for-All. This valuation is far below the 2022 high of 1.4, which was considered stretched.
Performance and Outlook
Despite the recent post-earnings rally, UnitedHealth is still down nearly 9% in 2023. However, Wilkes's upgrade and positive outlook could lead to a potential 24.6% increase in share price over the next year. The stock rose 0.6% on Tuesday before the market opened. In conclusion, the combination of strong earnings, growth potential, and the undervalued stock makes UnitedHealth an attractive investment opportunity.
Impact on New Business
The positive earnings report and upgrade of UnitedHealth by Bernstein analyst Lance Wilkes present an interesting opportunity for new businesses in the healthcare industry. UnitedHealth's strong financial performance, coupled with its undervalued stock, indicates that the company is well-positioned for growth. This could have a ripple effect on other healthcare-related businesses and create a favorable environment for new ventures.
One key takeaway for new businesses is the growth potential in the value-based care (VBC) and managed care organization (MCO) sectors. UnitedHealth's status as a best-in-class MCO and VBC company highlights the importance of these areas in the evolving healthcare landscape. Entrepreneurs entering the healthcare space should consider developing innovative solutions that align with the industry's shift towards value-based and managed care models.
Additionally, the low relative valuation of UnitedHealth compared to the S&P 500 indicates that it may be a good time to invest in the healthcare sector. This could attract new investors and potentially lead to increased funding opportunities for startups in the healthcare industry.
However, new businesses should also be mindful of the challenges and potential risks associated with the healthcare market. Factors such as regulatory changes and rising medical costs can impact the performance of companies in this industry. It is crucial for new ventures to conduct thorough market research and develop sustainable business models that can navigate these dynamics.
Overall, the positive outlook for UnitedHealth and its potential for growth create an encouraging context for new businesses in the healthcare field. By capitalizing on the market trends and developing innovative solutions, entrepreneurs have the opportunity to contribute to the advancement of the healthcare sector while achieving their own business goals.
Article First Published at: https://www.cnbc.com/2023/07/18/unitedhealth-is-worth-buying-and-can-rally-nearly-25percent-bernstein-says.html