UnitedHealth stock (NYSE: UNH) got off to a strong start Tuesday morning, with shares climbing 4% in pre-market trading to around $333, a nice bump from Monday’s close of $320.
The rally comes as investors are feeling increasingly confident about the healthcare giant’s prospects, particularly around its crucial Medicare Advantage business.
The big story here is what’s happening with Medicare star ratings.
These ratings, handed out by the Centers for Medicare & Medicaid Services, are absolutely critical for companies like UnitedHealth because they determine how much extra money the government pays out and how attractive the plans look to seniors shopping for coverage.
Word on the street is that UnitedHealth stock is expected to maintain or even improve its star ratings next year, which has investors pretty excited about what that could mean for the bottom line.
UnitedHealth stock: Solid numbers behind the optimism
UnitedHealth’s recent second-quarter results give plenty of reason for this bullish sentiment. The company pulled in $111.6 billion in revenue – that’s $12.8 billion more than the same period last year.
Even with some headwinds from their individual exchange business (think Obamacare marketplace plans) that cost them $1.2 billion, they’re sticking with their full-year guidance of $445.5 to $448 billion in revenue.
The earnings picture looks solid too, with adjusted earnings per share hitting $4.08 for the quarter. Management is projecting at least $16.00 per share in adjusted earnings for the full year, which has kept analysts happy.
What’s really driving growth is the sheer scale of their operation. UnitedHealthcare, their insurance arm, now serves 50 million people – they’ve added 770,000 members just this year.
Meanwhile, Optum, its healthcare services division, brought in $67.2 billion in revenue, up nearly 7% from last year.
What analysts say?
Wall Street analysts generally like what they’re seeing from UnitedHealth stock. The company’s one-two punch of insurance and healthcare services gives them multiple ways to make money and helps smooth out some of the volatility that comes with the healthcare business.
Many analysts have been raising their price targets, betting that the company can keep growing its Medicare membership while keeping costs under control.
That said, it’s not all smooth sailing. There are always regulatory risks lurking like changes to Medicare reimbursement rates that could hurt profitability, and inflation continues to push up healthcare costs across the board.
But most analysts seem to think UnitedHealth’s diversified business model and investments in technology and value-based care put them in a good position to handle whatever comes their way.
The Monday morning stock surge really captures where investor sentiment stands right now.
Between solid quarterly results, promising Medicare star rating news, and a business model that seems built to weather uncertainty, UnitedHealth is looking like a winner in the competitive healthcare landscape.
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