“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, October 22, 2018

by Ian Harvey

IMPORTANT NOTE: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

You may also wish to read Stock Options Made Easy Trading Philosophy


"Trading Capital Management"

Option Trade – UnitedHealth Group Inc. (NYSE:UNH) Calls

Tuesday, October 23, 2018

** OPTION TRADE: Buy the UNH JAN18 2019 270.000 CALL at approximately $6.00. Place a pre-determined sell at $12.00.

Also include a protective stop loss of $2.40.

UnitedHealth Group Inc. (NYSE:UNH), a leader in health insurance for years, has made a key transition that has helped it avoid some of the headwinds that its peers have had to deal with, and smart strategic moves have put the health insurer in position to take maximum advantage of favorable trends in certain areas of the market.

Last Tuesday's third-quarter financial report saw UnitedHealth produce strong numbers; and with strong momentum, has high expectations that 2019 could be an even better year operationally than 2018 was, and that's making this options trade look positive.

About UnitedHealth Group…..

UnitedHealth Group Incorporated operates as a diversified health care company in the United States. It operates through four segments: UnitedHealthcare, OptumHealth, OptumInsight, and OptumRx.

The UnitedHealthcare segment offers consumer-oriented health benefit plans and services for national employers, public sector employers, mid-sized employers, small businesses, and individuals; health care coverage, and health and well-being services to individuals age 50 and older, addressing their needs for preventive and acute health care services, as well as services dealing with chronic disease and other specialized issues for older individuals; and Medicaid plans, Children's Health Insurance Program, and health care programs; and health and dental benefits.

Past Performance…..

UnitedHealth's third-quarter results were just the latest in a series of encouraging performance from the health insurer. Revenue of $56.6 billion was up 12% from year-ago levels, outpacing what those following the stock had expected to see on the top line by a narrow margin. Net income jumped 28% to $3.28 billion, and after allowing for some extraordinary items, adjusted earnings of $3.41 per share topped the consensus forecast among investors by $0.12 per share.

Future Earnings…..

UNH’s next earnings report date is expected to be January 15, 2019. In that report, analysts expect UNH to post earnings of $3.23 per share. This would mark year-over-year growth of 24.71%. Meanwhile, the latest consensus estimate is calling for revenue of $57.63 billion, up 10.69% from the prior-year quarter.

Moving Forward…..

The strong performance from UNH stock has been taking place within a well-defined up-trending channel. While the stock is now trading at the upper end of this channel, it has been up there in a consolidation phase since early September.

UNH is now in a position for the stock to see another leg higher from here soon.

As mentioned, UNH has been in a trading range since early September and is supported by the 100-day simple moving average on the lower end and has simple horizontal resistance at the top.

On October 16, UNH stock gapped higher on the back of its latest earnings report and thus once again defending support although not yet breaking higher.

With the recent pullbacks due to overall market movement, expect a year-end rally to manifest in the not-too-distant future, and healthcare stocks like UNH stock should participate well in that move.

Influencing Factors…..

Note the recent changes to analyst estimates for UNH. These revisions typically reflect the latest short-term business trends, which can change frequently. As a result, a positive estimate revision is a good sign for the company's business outlook.

Based on research, these estimate revisions are directly related to near-team stock moves

Fundamentally, UnitedHealth has been able to fend off threats and build on strengths. The insurer's medical care ratio improved by nearly half a percentage point to 81%. Although operating costs rose slightly to 15% because of the return of the health insurance excise tax, falling income tax rates helped to offset the overall impact to the bottom line.

From a segment perspective, UnitedHealth enjoyed balanced growth. The UnitedHealthcare health insurance business saw revenue rise nearly 13% as the company saw growth in customer counts and better pricing practices. The best gains for the business came from the community & state and Medicare & retirement divisions, as well as from UnitedHealth's global business. Relatively slow growth in employer and individual policies had a detrimental impact on margin levels, but overall, the numbers were solid.

Meanwhile, UnitedHealth's Optum unit saw its top line rise 11%. The strongest growth came from the unit's OptumHealth health management business, and the OptumInsight unit also did well on strength in data analytics and services offerings. Even the OptumRx pharmacy benefit management unit managed to see revenue climb 9% from year-ago levels.

Moving Ahead…..

CEO David Wichmann sees plenty of good things ahead. "[Our] results provide a sense of the capacities to advance growth within our business," Wichmann said, "capacities rooted in the breadth and adaptability of our business approach and, above all, in our mission: helping people live healthier lives and helping make the health system work better for everyone."

UnitedHealth's promising future also had immediate positive impacts on the health insurer's near-term guidance. The company now expects to post adjusted earnings for the full year of about $12.80 per share. That's up from its previous range of between $12.50 and $12.75 per share, and UnitedHealth believes that its core competencies in areas like data analytics for physician referrals, on-demand healthcare benefits, integrated medical and pharmacy information systems, and consumer digital health platforms should translate to further growth in the years to come.

Analysts and Hedge Funds Opinions

Zacks Investment Research upgraded shares of UnitedHealth Group from a hold rating to a buy rating in a research note issued to investors on Tuesday, September 25th. Zacks Investment Research currently has $299.00 price objective on the healthcare conglomerate’s stock.

According to Zacks, “UnitedHealth has been performing well on the back of solid performance by its UnitedHealthcare and Optum segments. The company's robust Government is also driving long-term growth. Its international business and strong capital position driving business investment are the other positives. The company has been witnessing an increase in membership over the past many years. Its raised 2018 earnings guidance should instill optimism among investors in the stock. Shares of UnitedHealth Group have slightly underperformed the industry in a year's time. However, the company is witnessing pressure in membership in its commercial business. Increasing consolidation will also heat up competition in the industry.”

Several other equities analysts have recently commented on the company…..

  • BMO Capital Markets upped their price objective on shares of UnitedHealth Group to $310.00 and gave the stock an “outperform” rating in a research report last Thursday.
  • Argus increased their price target on shares of UnitedHealth Group to $285.00 and gave the company a “buy” rating in a research report on Thursday.
  • Oppenheimer increased their price target on shares of UnitedHealth Group from $276.00 to $295.00 and gave the company an “outperform” rating in a research report on Wednesday, October 17th.
  • Royal Bank of Canada increased their price target on shares of UnitedHealth Group to $308.00 and gave the company an “outperform” rating in a research report on Wednesday, October 17th.
  • Piper Jaffray Companies increased their price target on shares of UnitedHealth Group to $300.00 and gave the company an “overweight” rating in a research report on Wednesday, October 17th.
  • Finally, UnitedHealth Group had its target price lifted by Jefferies Financial Group from $270.00 to $311.00 in a research note issued to investors on Wednesday, October 3rd.

One investment analyst has rated the stock with a hold rating, twenty-three have issued a buy rating and one has given a strong buy rating to the company’s stock. The stock currently has a consensus rating of “Buy” and a consensus price target of $300.41.


The healthcare sector still has plenty of opportunities for innovative leaders to find ways to make sure that patients benefit from all the medical and technological advances available to them, and thus far, UnitedHealth has done a lot to put itself in position to be the go-to provider for cutting-edge services to help improve healthcare experiences across its network.

UNH traded down $3.11 during trading on Monday, reaching $262.19. The stock had a trading volume of 2,618,138 shares, compared to its average volume of 3,103,216. The company has a current ratio of 0.69, a quick ratio of 0.75 and a debt-to-equity ratio of 0.61. The company has a market cap of $255.34 billion, a price-to-earnings ratio of 26.04, a price-to-earnings-growth ratio of 1.53 and a beta of 0.73. UnitedHealth Group Inc has a one year low of $205.80 and a one year high of $272.81.