UnitedHealth Group Inc. (UNH, Financial) led the Dow Jones Industrial Average’s health care sector in 2016. Reporting a gain of 14.71% it far outperformed the return of its closest competitor, Pfizer (PFE, Financial) up 1.99%, and the Dow Jones Industrial Average which reported a loss of -3.5%. Despite uncertainty in the health care sector around the Affordable Care Act and political agendas for the sector, many analysts see UnitedHealth continuing to gain in 2016.
Here’s a preview of what to expect in the year ahead and earnings results announcement on Jan. 19.
In the first nine months of 2015, UnitedHealth posted a total revenue gain of 17%. Operating in two key segments reported as UnitedHealthcare and Optum the firm’s Optum revenue posted a gain of 31% for the first nine months. The UnitedHealthcare business segment posted a revenue gain of 10% in the first nine months.
Providing health care plan services for employers, individuals, retirees and governments, UnitedHealthcare is a leading health plan provider in the U.S. and globally. In the first nine months its Community and State services posted revenue growth of 26% to $22 billion.
The firm’s Optum business segment provides direct services for health care industry professionals and direct health care providers. UnitedHealth’s Optum business includes three subsegments: Health, Insight and Rx. In the first nine months of the year all three subsegments reported strong growth. OptumRx increased revenue by 35% followed by OptumHealth with a gain of 28% and OptumInsight improving revenue 17%.
Net earnings for UnitedHealth were also strong for the first nine months of the year. Net income was up 12% to $4.6 billion. Earnings per share also posted a substantial gain, up 14% to $4.75.
Analysts are predicting similar growth for the health care company in 2016 with a leading sector dividend yield also adding to the company’s growth prospects. To finish 2015, analysts see sales growth of as much as 21% in comparison to the previous year with 2015 revenue potentially reaching $158 billion. Earnings per share for 2015 are also expected to finish significantly higher with a potential gain of 13% over the previous year.
In 2016, analysts are predicting growth in revenue and earnings to continue improving robustly. Revenue for 2016 is expected to be up as much as 18%. Meanwhile, earnings per share are also expected to increase 22%.
Adding to incentive for investment in the stock is its dividend yield. Its forward dividend yield is 1.72%, substantially higher than the health care plan industry’s average forward dividend yield of 0.43%.
The outstanding shares of UnitedHealth are widely dispersed among shareholders with the Vanguard Health Care Fund holding one of the largest concentrated positions at 2.25%. Further supporting its growth prospects the Fund added 947,900 shares of UnitedHealth in the third quarter, increasing its stake to $2.49 billion.
Disclosure: I do not hold any shares of UnitedHealth Group Inc.
