Will UnitedHealth Group Surge Higher?

With shares of UnitedHealth Group (NYSE:UNH) trading around $59, 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. UnitedHealthcare Employer & Individual serves individual consumers and employers. The health needs of seniors are served by UnitedHealthcare Medicare & Retirement. UnitedHealthcare Community & State serves the public health marketplace, offering states Medicaid solutions. Optum serves health system participants, including consumers, physicians, hospitals, governments and pharmaceutical companies. Adequate healthcare is very important to most consumers. Through its four segments, UnitedHealth Group is able to provide healthcare products and services to a growing number of concerned individuals and businesses.

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T = Technicals on the Stock Chart are Strong

UnitedHealth Group stock has seen a consistent uptrend since reaching lows during the Financial Crisis. The stock is now consolidating right below all-time high prices so it may be prepping to head higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? 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

22.33%

13%

15%

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

Put IV Skew

Call IV Skew

May Options

Average

Average

June Options

Average

Average

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

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion…

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 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%

1.69%

28.21%

9.48%

Revenue Growth (Y-O-Y)

11.22%

11%

7.99%

8.05%

Earnings Reaction

-3.77%

1.37%

-1.06%

-2.41%

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

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P = Average Relative Performance Versus Peers and Sector

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

UnitedHealth Group

Aetna

Humana

WellPoint

Sector

Year-to-Date Return

9.07%

19.97%

7.34%

14.07%

10.78%

UnitedHealth Group has been an average relative performer, year-to-date.

Conclusion

UnitedHealth Group aims to fill a growing health and wellness concern to an expanding population across the country. The stock has seen a modest rise since hitting lows during the Financial Crisis and is now trading near all-time high prices. Earnings and revenue have been growing but investors have had higher expectations for the company. Relative to its peers and sector, UnitedHealth Group has been an average year-to-date performer. WAIT AND SEE what UnitedHealth Group does this coming quarter.

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