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Here’s why UnitedHealth Stock is a better choice than this health insurance company

By on November 18, 2021 0

We think that UnitedHealth Stock (NYSE: UNH) is currently a better choice compared to Human action (NYSE: HUM) in the healthcare industry, although UnitedHealth is the more expensive of the two. UNH stock is trading at around 1.5x sliding income compared to 0.7x for HUM stock. Although both companies have seen an increase in revenues over the past year or so, with increased Medicaid and Medicare enrollments, UnitedHealth has performed better in recent quarters, with earnings expansion and better results. provided that. As a perspective, HUM stock has lost 1% over the past six months, underperforming the larger indices, with the S & P500 rising 12% over the same time frame. This compares to a 10% increase for the UNH stock. However, there is more to the comparison. Let’s step back to take a closer look at the relative valuation of the two companies by looking at historical revenue growth as well as operating margin growth. Our dashboard UnitedHealth vs Humana: industry peers; Which action is a better bet? has more details on this. Parts of the analysis are summarized below.

1. Humana’s revenue growth has been stronger

Today, UnitedHealth’s revenue grew at a faster rate of 11% versus 9% for Humana over the past twelve months, mainly driven by strong demand for its Optum Health business, which provides healthcare through through local medical groups. However, if we looked at the past three years, Humana’s revenue has grown at a 13% CAGR, much better than the 8% CAGR for UnitedHealth. Looking ahead, Humana’s revenue is expected to grow double-digit in 2021 as well as 2022, in part thanks to the Kindred acquisition. Earlier this year, Humana announced the acquisition of the remaining 60% (Humana previously owned 40%) in Kindred At Home, the largest home care provider in the United States. A few months ago, Humana announced the acquisition of One Homecare Solutions, another home care provider. These acquisitions will strengthen Humana’s revenue growth going forward.

For UnitedHealth, sales are expected to experience similar double-digit growth this year and next. As the economy gradually opens up, the volume of prescriptions is expected to increase, boosting the company’s revenue growth. Employment levels have also tended to increase in recent months, which is likely to help the employer and the company’s individual insurance premiums. Additionally, the company’s Optum Health segment has experienced strong growth in recent quarters, a trend that is expected to continue in the near term. As a perspective, Optum Health’s revenue grew 37% year-over-year for the nine-month period ending September 2021, compared to just 12% overall revenue growth for the company. Our dashboard on UnitedHealth group turnover offers more details on the business segments.

2. UnitedHealth is more profitable

In terms of profitability, contrary to the trend in revenue growth, UnitedHealth’s operating margin of 7.7% over the past twelve months is much better than the 3.5% for Humana. Even if we looked at the average operating margin for the past three years, UnitedHealth’s 8.0% figure is well above Humanana’s 5.2%. UnitedHealth’s operating margin of 7.7% in the past twelve months compares to 8.0% in 2019, before the pandemic. The current operating margin of 3.5% for Humana is lower than that of UnitedHealth, and it is also lower than the 4.9% figure in 2019. The Humana benefit-cost ratio (the ratio of medical expenses payable over premiums received) of 86.3% for the nine months ending September 2021, is higher than the figure of 82.3% for UnitedHealth. This compares to levels of 85.6% for Humana and 82.5% for UnitedHealth in 2019, before the pandemic.

The net of everything

Now that more than half of the U.S. population is fully vaccinated against Covid-19, with a pickup in global economic activity, demand for employer insurance is expected to increase, along with prescription volume gains as well as demand. increased home health care. This should bode well for both companies.

Currently, Humana’s current valuation is apparently more attractive than that of UnitedHealth, with HUM stocks trading at around 0.7 times trailing earnings, compared to 1.5 times UNH stocks, and Humana has also seen a better revenue growth in recent years. However, UnitedHealth is much more profitable, partly explaining the difference in valuation of the two companies. Even if we looked at the financial risk, while Humana’s 40% cash as a percentage of assets is greater than 11% for UnitedHealth, Humana’s 21% debt as a percentage of equity is well above the 10% figure. for UnitedHealth, which implies that UnitedHealth has a better debt position, while Humanana has a better cash cushion. This means that UNH stocks do not appear to be higher financial risk than HUM stocks. Overall, with higher margins for UnitedHealth and growing demand for its other businesses, including Pharmacy Care and Optum Health, we believe this valuation gap between UNH and HUM is justified and UNH may continue to outperform l HUM action in the future.

While the UNH stock may outperform HUM, 2020 has created many price discontinuities which may provide some exciting trading opportunities. For example, you will be surprised at how counterintuitive stock valuation is for Amgen vs. Humana.

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