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UnitedHealth

Morgan Stanley raised their stock price forecast on UnitedHealth to $515 from $462 and said conservative guidance around utilization and acuity trends should pave the way for more upside later in the year.

This upgrade in target price comes just after the United States’ largest publicly-held health care provider reported better-than-expected earnings in the first quarter on Thursday, April 15. UnitedHealth Group said its Q1 revenue jumped 9% to $70.2 billion, beating analysts’ consensus estimates of $68.9 billion.

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Minnesota-based health insurer reported adjusted net income of $5.31 per share, beating Wall Street’s expectations of $4.38 per share, which represents year-over-year growth of over 42% from $3.72 per share seen in the same quarter a year ago.

“2021 shaping up to be a year of beat and raise. Prior period development (~$1.04) accounted for the majority of 22% beat and we expect more upside as the year progresses and United gains better visibility on what percent of deferred care is not coming back. Moreover, commentary on the call highlighted that while utilization is still below baseline (for Medicare and Medicaid populations), early evidence suggests acuity levels for members who are coming back to the medical setting are not different than pre-COVID-19,” noted Ricky Goldwasser, equity analyst at Morgan Stanley.

“Considering that 2021 guidance assumes ~70% of COVID headwinds ($1.26 out of $1.80) would occur in 2H21 as utilization and acuity levels ramp, we think guidance leaves ample room for upside. 2022 on track to >$22 in earnings power. Our back-of-the-envelope earnings bridge highlights the path for 2022 EPS to exceed consensus estimates. Net-net, we see a path for United to deliver a bear to bull earnings range of $20.98 to $22.84 ($21.91 midpoint) in 2022 versus consensus’ $21.07. See Exhibit 1 for our earnings bridge to 2022.”

Following the upbeat earnings results, UnitedHealth’s shares, which surged more than 19% in 2020, hit a new all-time high of $392.93 on Friday.

Fifteen analysts who offered stock ratings for UnitedHealth in the last three months forecast the average price in 12 months at $425.13 with a high forecast of $515.00 and a low forecast of $370.00.

The average price target represents a 9.59% increase from the last price of $387.93. Of those 15 equity analysts, 13 rated “Buy”, two rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave the bull-case scenario target price of $592 and the worst-case scenario forecast of $323.

UnitedHealth Group is the number one Medicare Advantage player with ~28% market share, the number two Medicare PDP player with ~20% market share, and the number two commercial player with ~15% market share. United’s model is enhanced via vertical integration with its OptumRx PBM platform, which is one of the three largest PBMs in the country,” Morgan Stanley’s Goldwasser added.

“With a large lead in breadth of services offerings and considerable exposure to government businesses, UnitedHealth is well-positioned for any potential changes in the US healthcare system. A strong balance sheet and continued solid cash generation give flexibility for continued M&A.”

Other equity analysts also recently updated their stock outlook on Thursday. Oppenheimer raised the target price to $440 from $375. Stephens upped the price target to $425 from $415. Citigroup lifted the raises price objective to $450 from $408.

Moreover, RBC increased the stock price forecast to $409 from $396. Jefferies raised the target price to $414 from $394. Cowen and Company upped the price target to $415 from $370. Raymond James lifted the target price to $435 from $405.

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