UnitedHealth (UNH, Financial) revealed a stunning second-quarter earnings report as it strolled past its expectations with a revenue beat of $620 million and an earnings per share beat of 37 cents. The American health care and insurance giant's revenue has surged by 12.6% year-over-year, which is an impressive achievement considering the challenging economic climate it operates in.
Furthermore, following its earnings release, UnitedHealth provided positive full-year guidance by revealing that it expects its earnings per share to land at $20.95, an update from its previous estimate of $20.45.
Given the company's tremendous quarter, its long-term growth trajectory and its committment to returning cash to shareholders, I'm bullish on UnitedHealth stock; here are a few more details to consider.
Growth and valuation metrics
UnitedHealth's growth trajectory remains firm, with its five-year Ebitda compound annual growth rate at 11.97%, which is more than five times the United States' annual GDP growth rate. Moreover, the company has an approximate 14.4% market share in the U.S. health insurance industry, and its blockbuster government contracts could add exponential long-term value to its business model.
Source: Statista
Although United Health's price-earnings ratio might seem a tad high at 28, it's necessary to realize that the company has made 22 acquisitions since 2007. High-volume acquisitions amplify a stock's price-earnings ratio as high-growth acquisitions will add to an aggregate increase in the price-earnings ratio which doesn't reflect organic growth.
What does reflect the company's value is its return on common equity of 25% and its $21.66 billion in cash from operations.
Moreover, UnitedHealth distributes a reasonable share of its profits to shareholders with a dividend yield of 1.15%.
United Health in the current market
This year's bear market has frightened many investors, in turn causing risk aversion. A risk-averse market might benefit UnitedHealth stock as it could draw capital into lower beta stocks and out of higher beta assets.
UnitedHealth operates in a counter-cyclical industry. Additionally, it is a highly profitable company with sustainable returns and a fair dividend yield. Therefore, I wouldn't be surprised if investors taxi their capital in UnitedHealth stock while they wait for the market to turn bullish again.
Concluding thoughts
UnitedHealth's second-quarter report speaks volumes, especially the company's upgraded its full-year guidance. The company is highly profitable, provides solid returns to its stockholders and could be a lucrative investment during the current risk-off environment. As such, UnitedHealth stock is in great shape and conveys value in abundance.
