Is UnitedHealth Group a Buy at All-Time Highs?

With shares of UnitedHealth Group (NYSE:UNH) trading around $67, is UNH an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

UnitedHealth Group is a diversified health and well-being company. The company operates in four segments: Employer & Individual, Medicare & Retirement, Community & State, and Optum. Through its segments, UnitedHealth Group serves individual consumers and employers, the health needs of seniors, the public health marketplace (offering states Medicaid solutions), and health system participants (including consumers, physicians, hospitals, governments, and pharmaceutical companies).

Adequate healthcare is very important to most consumers and companies. In the United States, healthcare companies are seeing drastic changes in the industry, with an increasing number of healthcare companies coming under the spotlight. UnitedHealth Group is able to provide healthcare products and services to a growing number of concerned individuals and companies around the world.

T = Technicals on the Stock Chart are Strong

UnitedHealth Group stock has been trending higher over the last several years. This year, the stock has jumped to all-time high prices, and hasn’t show any signs of slowing just yet. Analyzing the price trend and its strength can be done using key simple moving averages.

What are the key moving averages? They are the 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, UnitedHealth Group is trading above its rising key averages, which signal neutral to bullish price action in the near-term.

UNH

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of UnitedHealth Group options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

UnitedHealth Group Options

24.44%

13%

10%

What does this mean? This means that investors or traders are buying a very small amount of call and put options contracts, compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options

Flat

Average

August Options

Flat

Average

As of today, there is average demand from call buyers or sellers, and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very small amount of call and put option contracts, and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates, and what that means for shares of UnitedHealth.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions can help gauge investor sentiment on UnitedHealth Group’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for UnitedHealth Group look like, and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

-11.45%

2.51%

28.21%

9.48%

Revenue Growth (Y-O-Y)

11.21%

11.01%

8.00%

8.05%

Earnings Reaction

-3.77%

1.37%

-1.06%

-2.41%

UnitedHealth Group has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have expected a little more from UnitedHealth Group’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has UnitedHealth Group stock done relative to its peers, Humana (NYSE:HUM), Aetna (NYSE:AET), WellPoint (NYSE:WLP), and the overall sector?

UnitedHealth Group

Humana

Aetna

WellPoint

Sector

Year-to-Date Return

25.22%

23.36%

37.73%

38.54%

31.15%

In a strong sector, UnitedHealth Group has been average performer, year-to-date.

Conclusion

UnitedHealth Group is a diversified healthcare company that is seeing increased attention as healthcare concerns take center stage. The stock has been steadily trending higher, and is now trading near all-time high prices. Over the last four quarters, earnings and revenue figures have been on the rise, but investors in the company expected a little more. Relative to its strong peers and sector, UnitedHealth Group has had an average year-to-date performance. Look for UnitedHealth Group to continue to OUTPERFORM.

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