UnitedHealth (UNH, Financial) reported its second quarter earnings this week along with healthcare company Johnson & Johnson (JNJ, Financial). The two Dow Jones Industrial Average healthcare companies have been gaining significantly in 2016. Both companies are up more than 20% year-to-date.
On July 19, UnitedHealth’s earnings beat both revenue and EPS expectations. For the second quarter the company reported revenue of $46.49 billion, beating analysts’ average estimate by $1.44 billion. Revenue for the quarter was up 28.2% from the comparable quarter. Earnings per share for the second quarter were $1.96, beating analysts’ average estimate by 7 cents.
UnitedHealth saw substantial growth in both of its main business segments, UnitedHealthcare and Optum. UnitedHealthcare provides diversified healthcare plans to a variety of business groups. UnitedHealthcare sales were up 14% led by UnitedHealthcare Community and State. The firm’s Optum business provides a range of healthcare platforms for specialized healthcare services. In Optum, sales were up 52%, led by growth in OptumRx.
The positive second quarter earnings report followed a strong first quarter report in which UnitedHealth had revenue growth of 24.5%.
UnitedHealth’s stock traded higher following its earnings report on July 19. For the July 22 week, it closed at $143.69. For the year, the stock is up 22.14%. The stock’s price does not appear to be affected by the company’s recent announcement to pull out of Obamacare exchanges across the country. The firm’s management sites the exchanges as overly expensive for the revenue received and valuations have improved since the firm’s announcement.
The firm’s stock is currently trading with a PE of 22.48, which is below the industry’s average of 28.98, indicating further upside potential. According to the second quarter’s estimate for annual EPS and a high end growth rate for average EPS, UnitedHealth could potentially have upside potential of 26% with a stock price target of $193.91.
Disclosure: I do not directly own any stocks included in this article.
