UnitedHealth Group (UNH, Financial) recently lowered its earnings guidance for 2015 to $6 per share. The company sites its potential exit from ACA based health plans. United is extremely profitable and its executives make an exorbitant amount of money for running tax-payer subsidized health care plans.
United cut its 2015 EPS to $6, and the current PE ratio is 18.5. Next year's guidance is $7.10 to $7.30 for a forward PE of 15.6. That's pretty cheap considering United's growth, profitability and comparison to other large cap stocks.
According to Morningstar, return on equity was 17.4% in 2014, while return on invested capital was 12.18%. Free cash flow was $6.526 billion. Revenue has grown from $45.4 billion in 2005 to $130.5 billion in 2014, while EPS has grown from $2.48 in 2005 to an estimated $6 per share next year. All the while, outstanding shares have decreased from 1.33 billion to 986 million over that time frame. United is solvent and its debt is A+ rated by S&P.
These numbers are outstanding textbook examples. Remember that if you are elderly and have money sitting at the bank, money markets and certificates of deposit are paying less than 1%. United's numbers are dynamite. If United were privately held, its owners would not want anyone to know how much money they were making.
In 2014, 80.9% of revenue was spent on care. Operating costs were 16.6%, and operating margins were a healthy 7.9%. Remember, this is a company that has a market cap north of $100 billion. It's huge!
According to the 2014 proxy, CEO Stephen Hensley made $14.8 million in total compensation in 2014, $12 million in 2013 and $13.8 million in 2012. President David Wichman made $12.1 million in 2014, $8.1 million in 2013, and $8.5 million in 2012. All together, the top six executives made $58.7 million in 2014.
Many of the plans that United runs are government sponsored, such as Tricare for military veterans and Medicare. United simply organizes these plans. One wonders why the top brass needs to make so much off of government plans. If United cut back compensation for top execs by $30 million, it could accrete to shareholders to the tune of 3 cents share. I guess that's not much, but it's a step.
According to a Wall Street Journal article, many other non-profit plans are breaking even on their health exchanges. One of the top headlines for the news on United's profit cut is Jim Cramer from CNBC. He said that it is "damning" for ACA. What he doesn't mention is that these companies and executives are making a literal fortune off of our tax-payer funded health plans. Hemsley states that United can't subsidize the exchange plans. Funny, the U.S. tax payer is subsidizing his $14 million a year pay package. That and the other co-CEO and ex-CEO's.
This article is not for or against the health exchange. It's against executives who make a large portion of their income off of government-run health care plans. United is extremely profitable, but its executives overpaid. Perhaps if they put their heads together, they can come up with a way to provide health care for more people.
