“UnitedHealth Group, Inc. (UNH)—A U.S. leader in health care management, UnitedHealth provides a broad range of health care benefits and services, including health maintenance organizations (HMOs), point of service (POS) plans, preferred provider organizations (PPOs) and managed fee-for-service programs. Gains from the rising Medicare population will be offset by future rate cuts in Medicaid and Medicare during the next several years.
“Although details in the Affordable Care Act are lacking, the increased Medicare population will likely more than offset rate cuts. In July 2012, the U.S. Defense Department awarded its Tri-Care contract to UnitedHealth. The five-year contract will provide a noticeable boost to sales and earnings. In addition, the recent acquisition of XLHealth, which serves seniors with special needs, will add to sales and earnings in 2013 and beyond. UnitedHealth is gaining market share by lowering costs and increasing services to customers. I forecast revenue and EPS growth of 9% in 2013. At 10.3 times latest EPS, UNH shares are undervalued. UNH shares sell well below S&P’s discounted cash flow value of 65.00. The 1.6% dividend yield and very low risk rating make UNH an excellent investment choice. Minimum Sell Price = 72.20.”
J. Royden Ward, Cabot Benjamin Graham Value Letter, March 2013
