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UnitedHealth (UNH) stock price hits all-time high, gets overbought


UnitedHealth
UnitedHealth

UnitedHealth (UNH) is a leading American company that provides its services to millions of people each year. It operates its business through its two divisions: UnitedHealthcare and Optum.  


UnitedHealthcare offers health insurance services ti over 27.3 million people globally while Optum operates three key businesses: Optum Health, Optum Insight, and Optum Rx.


UNH has grown both organically and through its acquisitions. For example, it acquitted Change Healthcare in 2022 for $13 billion, a buyout that gave it a leading market share in the software and data analytics industries. 


Its stock has risen by 540% in the past decade, giving it a market cap of over $505 billion, making it the 18th biggest company in the world. It has risen by 9% this year.


Positive hype

UnitedHealth Group’s stock surged to a record high of $573 this week after the company published strong financial results and attracted positive analyst upgrades.


  • UNH published a strong earnings report that beat analysts' estimates in the top line. 


  • Its revenue by $6 billion in the second quarter to $98.9 billion, beating the consensus by $44.19 million. Its revenue has been better than expected in the last four straight quarters.


  • The management is seeing robust momentum from large buyers like large employers, unions, states, and seniors. 


  • It also upgraded its outlook for the year as demand for healthcare is expected to continue rising. The expectation is that its adjusted EPS will be between $27.50 to $27.50. The average estimate among analysts is that its annual EPS will be $27.59.


  • Analysts have cheered UnitedHealth’s business. Argus Research maintained its buy rating while Barclays, Cantor Fitzgerald, Wells Fargo, and RBC Capital maintained their overweight ratings.


  • In a note, an analyst at Jefferies upgraded the stock from hold to buy, citing its strong momentum and the fact that its top negative factors had been received.


  • Investors love Jefferies because of its strong market share in the health insurance industry. It also has a good track record of growing its dividend payouts. It has boosted its dividend rate in the last 14 years, with its five-year growth rate being at 15.4%.



Negatives

UnitedHealth faces numerous risks that could affect its stock price in the future.


  • Its valuation is not cheap as it is trading at a premium to peers and its historical trends. It has a TTM P/E ratio of 36.26, higher than the sector median of 35.4. Its five-year average is 23. 


  • Similarly, its forward EV to EBITDA ratio of 15, is in line with the sector’s average and is slightly above its five-year average of 14. 


  • The company is also facing internal and external issues, which the management has admitted. It recently went through a cyberattack, which is expected to cost it $800 million this year. 


  • It also had a disruption of its Change Healthcare business, which it acquired in 2022. This disruption cost it 28 cents per share in the second quarter and the management expects the disruption to rhea 60 cents this year. 


  • Healthcare costs have also continued rising, which will likely affect its margins this year.


  • This is an election year, meaning that health insurance companies will be in the spotlight this year as politicians make their promises. Indeed, UnitedHealth’s officials will be among the executives who will testify to Congress this month on PBMs. 


  • Finally, technically, the stock has gotten highly overbought. The Relative Strength Index has risen to 79 while the two lines of the Stochastic Oscillator have moved to almost 100. The Money Flow Index (MFI) has also jumped to 84.


UnitedHealth stock chart
UnitedHealth stock chart


Final thoughts on UnitedHealth

UnitedHealth stock price has done well this year and has jumped to its highest level on record. It has benefited from its scale as it became the biggest healthcare insurance company in the world. 


The company is mitigating the challenges in the industry by cutting some of its costs. Optum, one of the core players in its ecosystem, has announced a series of small layoffs this year.


It will also benefit from the Federal Reserve, which is expected to start cutting interest rates later this year now that inflation is falling. 



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