Options Trade – UnitedHealth Group Inc. (NYSE:UNH) Calls
Wednesday, January 15, 2014

Health Care Buys Profit!

**OPTIONS TRADE: Buy the UNH Jun 2014 75.000 call (UNH140621C00075000) at or under $3.70, good for the day. Place a protective stop limit at $1.50 and a pre-determined sell at $6.00.

by Ian Harvey

January 15, 2014

Introduction

UnitedHealth Group Inc. (NYSE: UNH) is set to report fourth-quarter and full year 2013 results before the opening bell on Jan 16.

UnitedHealth Group Inc. has topped analysts' consensus estimates in seven of the last eight quarters, matching once. The current consensus outlook of $1.40 per share reflects a 20-cent improvement over the company's year-ago results.

UnitedHealth Group Inc. is still a relatively new member of the Dow Jones Industrial Average (DJIA). Its stock gained a whopping 41% in 2013, much better than the 29.6% of the S&P 500 and 26.5% for the DJIA.

However, UnitedHealth has been facing numerous challenges related to the Affordable Care Act. Despite the headwinds, the company has been able to achieve top as well as bottom-line growth, led by its diversified and differentiated business profile. The company has also seen an increase in its membership led by higher enrollment in its international business.

UnitedHealth has also benefited from efficient expense management along with a strong balance sheet.

Company Details

UnitedHealth Group Incorporated (UnitedHealth Group) diversified health and well-being company. The Company operates in four segments: UnitedHealthcare, which includes UnitedHealthcare Employer & Individual, UnitedHealthcare Medicare & Retirement and UnitedHealthcare Community & State; UnitedHealthcare Community & State; OptumHealth; OptumInsight, and OptumRx.

The Company operates these businesses across eight markets: integrated care delivery, care management, consumer engagement and support, distribution of benefits and services, health financial services, operational services and support, health care information technology and pharmacy.

Key Statistics for UNH

Current P/E Ratio (ttm) 13.9924
Estimated P/E(12/2013) 13.4753
Relative P/E vs. SPX 0.8083
Earnings Per Share (USD) (ttm) 5.2900
Est. EPS (USD) (12/2013) 5.4930
Est. PEG Ratio 1.3516
Market Cap (M USD) 74,520.24
Shares Outstanding (M) 1,006.76
30 Day Average Volume 4,474,268
Price/Book (mrq) 2.3073
Price/Sale (ttm) 0.6260
Dividend Indicated Gross Yield 1.51%
Cash Dividend (USD) 0.2800
Dividend Ex-Date 12/04/2013
5 Year Dividend Growth 103.71%
Next Earnings Announcement 01/16/2014

Earnings

UnitedHealth Group last posted its quarterly earnings results on Thursday, October 17th. The company reported $1.53 earnings per share (EPS) for the quarter, beating the consensus estimate of $1.52 by $0.01. The company had revenue of $60.60 billion for the quarter, compared to the consensus estimate of $30.80 billion.

During the same quarter in the previous year, the company posted $1.50 earnings per share. The company’s revenue for the quarter was up 12.2% on a year-over-year basis. Analysts expect that UnitedHealth Group will post $5.49 EPS for the current fiscal year.

The Bullish Case for UNH

Several factors that make an options call on UNH viable are:-

• The surviving health insurance companies succeed in much of the same way as a regulated utility - the companies have merged into a near cartel, and UnitedHealth is the biggest of them all, with a market value nearing $80 billion.

• Standard & Poor's would not have added this company to DJIA if they thought chances were high that it would topple under Obamacare.

• Another bullish case is that investors forget about evaluating this one as a health care company, because after all it is merely a financial risk-taker that is making a bet it can charge more than it has to pay out in health insurance claims.

Analysts Opinions

UnitedHealth Group was upgraded by equities researchers at Deutsche Bank from a “hold” rating to a “buy” rating in a research report issued on Tuesday, 7th January, 2014.

Also, TheStreet restated their buy rating on shares of UnitedHealth Group in a report released on Monday, 16th December, 2013

“UnitedHealth Group (UNH) has been reiterated by TheStreet Ratings as a buy with a ratings score of A+. The company’s strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, attractive valuation levels, good cash flow from operations and growth in earnings per share. We feel these strengths outweigh the fact that the company shows low profit margins.,” the firm’s analyst commented.

Also, UNH has been the subject of a number of other recent research reports:-

• Analysts at JPMorgan Chase & Co. raised their price target on shares of UnitedHealth Group from $84.00 to $87.00 in a research note to investors on Wednesday, December 4th.

• Separately, analysts at Jefferies Group reiterated a buy rating on shares of UnitedHealth Group in a research note to investors on Wednesday, December 4th. They now have a $86.00 price target on the stock, up previously from $82.00.

• Finally, analysts at UBS AG raised their price target on shares of UnitedHealth Group from $81.00 to $84.00 in a research note to investors on Monday, November 25th. They now have a buy rating on the stock.

Analyst Firms Making Recommendations

ARGUS RESEARCH B OF A M L
BARCLAYS CAPITA CANTOR FITZGERA
CO FORECST COWEN & COMPANY
DEUTSCHE BK SEC FBR CAP MARKETS
GOLDMAN SACHS J.P. MORGAN
JEFFERIES & CO. LEERINK PARTNER
MORGAN STANLEY OPPENHEIMER HLD
RAYMOND JAMES STIFEL NICOLAUS
UBS WEDBUSH SECURIT
WELLS FARGO SEC

Therefore, based on the facts above the following options trade is recommended…..


**OPTIONS TRADE: Buy the UNH Jun 2014 75.000 call (UNH140621C00075000) at or under $3.70, good for the day. Place a protective stop limit at $1.50 and a pre-determined sell at $6.00.



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