UnitedHealth Group Looks Buyable After AI-Fueled Double Beat

Key Points

• UnitedHealth Group stock is down despite the company's double beat in its fourth-quarter earnings.  
• A rise in medical expenses may be obscuring the increase in revenue from the company's Optum division, which uses AI to help improve revenue accuracy and efficiency today and later patient care. 
• UNH stock is approaching a key moving average that has been a reliable buying signal in the last few months. 

The big banks will get the headlines, but investors should watch UnitedHealth Group Inc. NYSE: UNH. The health insurance giant scored a double beat when it reported fourth-quarter earnings on January 12, 2024. The headline numbers are as follows: Earnings per share came in at $6.16, beating analysts' expectations of $5.99. Revenue of $94.43 beat expectations of $92.18. 

However, UNH stock dropped 3.4% in early trading as investors were concerned about the company's sharp year-over-year rise in medical expenses. Much of this stems from the company's Medicare Advantage business. A rise in medical expenses is a drag on profits. That's the reason why UNH stock fell after earnings.  

With that said, there are technical reasons why UNH stock may be buyable on this recent dip. But there's another reason you may want to consider. 

The rise of AI in healthcare 

One of the highlights of the earnings report came from the company's Optum division. Quarterly revenue was $59.5 billion, a 24.2% increase. That helped to offset some of the rise in medical expenses. 

Optum is comprised of a group of doctors who provide care through local medical groups and contract with most major health insurance plans. This includes pharmacy services as well as telehealth. However, a key focus of Optum is the use of technology and data-enabled care delivery.  

If that sounds like artificial intelligence (AI), you're right. Optum has its own division, Optum360™, which has been using AI since 2018. The idea is to move from preventative medicine to predictive medicine. The use of AI in care delivery, however, is still in its early stages. 

Still, the company uses natural language processing (NLP) to improve revenue accuracy and efficiency by helping with tasks such as finding meaning in medical records, revealing important documentation issues to clinicians, and reducing resource constraints. 

A safe, growing dividend 

The UNH stock price has jumped over 108% in the past five years. That's approximately an average annual gain of 20%, making UnitedHealth Group one of the top medical stocks. It also qualifies UnitedHealth as a growth stock. However, investors shouldn't overlook the company's dividend. 

The yield of 1.44% isn't particularly impressive. But, the company has increased its dividend in each of the last 14 years. In the last three years, that dividend has grown by over 14% annually. And with a 32% payout ratio, future dividend growth is a near certainty. Currently, the total annual payout per share is $7.52 

UNH stock approaches the buy zone 

UNH stock is trading within a fairly defined range. Twice in the last 45 days, the stock has faced resistance at its 52-week high of around $550. However, before earnings, the stock was trading around $520. This has been a buying signal for investors on two separate occasions in the last three months. 

Of course, past performance isn't always a useful predictor. But technical analysis suggests that with the UNH stock drifting towards its 100-day simple moving average at $521.60, the stock could be a buy.  

But what about the longer term? The UnitedHealth analyst ratings on MarketBeat give UNH stock a Moderate Buy rating with a stock price that suggests a 10% upside.