UnitedHealth Group (NYSE: UNH) Is A Buy After Earnings

There Are Three Kinds Of Stocks In This Market

One of the things I have noticed in today’s market is that many of the estimates for Q2 results and FY 2020, more so FY 2021, are too low. The analysts overestimated the downside and have since underestimated the upside potential of the market. That has us set up for a nice tailwind fueled by analysts upgrades. Another thing I have noticed is that technically speaking, there are three kinds of stocks in today’s market.

The three kinds of stocks in today’s markets are those that have not bounced back meaningfully from the pandemic-lows, those that have bounced back from the lows and are trading near the pre-pandemic highs, and those that have rebound strongly to retest and surpass the pre-pandemic highs. In many cases, the stock in the third group have not only hit new post-COVID highs but moved on to set new ALL-TIME HIGHS. Let that sink in, all-time highs. After reviewing the earnings statement and looking at the charts, I have come to the conclusion that UnitedHealth Group (NYSE: UNH) is a #2 verging on #3. All it needs now is to break out to make it a buy.

The Results Are In, The Outlook Is Good

UnitedHealth Group reported a solid quarter in which strength in premiums offset weakness in all other areas. The company reported $62.14 billion in revenue, a slight miss but who cares, really, when the company is growing. Q2 revenue is up 2.5% from the same period last year and drove a solid increase in profits. EPS, both adjusted and GAAP, beat consensus by double-digits to post near-100% increases from the previous year. The caveat is that cost-rebounds will catch up to the company in the 3rd quarter but not enough to impact the full-year guidance.

The company’s guidance has adjusted EPS in the range of $16.25 to $16.55 versus a consensus of $16.35. This has the company set up to beat in 2020 and produce solid growth in the following year. Consensus for 2020 has adjusted EPS in the range of $18.51. Assuming UnitedHealth produces EPS at the top-end of this year’s range that’s YOY growth of 12% on top of this year’s results. This year’s results should be decent, the company reports claims are nearing the 100% mark relative to last year’s business.

A Healthy Dividend, If Not A Healthy Distribution

UnitedHealth Group is a dividend payer worth taking note of. The only thing I can find fault with is the yield, a tad below the broad market average, but its so healthy I can’t really complain. The company’s payout ratio is running at a cool 30% and backed up by a fortress balance sheet. The cash-generating power, the cash position, the free-cash-flow, low debt, and coverage ratios ensure the safety of future payments and imply a 12th consecutive annual dividend increase is coming, To be sure, the 11th was just issued so it will be another year before the next one is due. Regarding the increases, the 5-year CAGR is running above 25% so future increases could be quite substantial.

The Technical Outlook Is Bullish

UnitedHealth Group has one of those charts that is fun to look at. The chart has been in a clear uptrend for years setting the most recent all-time high prior to the COVID-correction. The correction was deep but offered such a sweet entry point to this dividend payer it made a vigorous Vee bottom. Since then it has been consolidating near the all-time high where it is now throwing another entry signal. The entry signal is a combination of 1) a bounce from the short term moving average and 2) bullish crossovers in the stochastic and MACD.

The only thing holding UNH back is resistance at the previous all-time high but there are signs that resistance won’t hold. For one, it has been tested once before and failed to spark a significant correction. Assuming the stock does make a break to new highs, a move to $340 is likely to occur in the near to the very-short term. A larger move to $400 is expected in the longer. These targets are derived by projecting the magnitude of the post-pandemic consolidation range, about $30, and the magnitude of the Vee-bottom, about $100.