Standpoint Research Downgrades UnitedHealth Group (UNH) to Hold

June 17, 2013 4:12 PM EDT Send to a Friend
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Price: $113.63 -0.03%

Rating Summary:
    15 Buy, 5 Hold, 2 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 15 | Down: 38 | New: 13
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Earlier, Standpoint Research downgraded UnitedHealth Group (NYSE: UNH) from Buy to Hold.

Analyst Ronnie Moas commented, "UNH shares hit an all-time high today and have jumped 17% in the last three months versus just 4% for the S&P-500. Not bad for a low-beta name in a rising market. We put out this recommendation on April 1 before the well-received Medicare reimbursement rate news hit the newswires. This caused a spike in the share price. Given the absolute and relative move in this name, I can no longer leave my highest recommendation attached to UNH shares, now less than 10% away from my price target for 2014.

UNH shares are now trading 13X trailing twelve months earnings, 12X estimates for 2013 and 11X declining estimates for 2014 now at $5.82 versus $5.98 (60 days ago). Costs have been rising at UNH. Additionally, the new health care law will create more competition in health insurance markets around the country, and is attracting additional insurance companies into states previously dominated by a few carriers. This competition is good for consumers shopping for insurance but this will put downward pressure on prices, and that will offset factors that have a tendency to increase premiums (and that have helped boost the UNH share price). According to the Obama administration, more than 120 insurance companies have filed applications with the federal government, and it appears that most consumers will be able to choose from health plans offered by five or more insurers.

My concern is that with UNH at an all-time high there will be major holders looking to exit and that will weigh on the share price. There are ten institutions holding $1.5 bln - $3.0 bln in UNH stock and if a couple/few of these institutions decide to lock in recent gains UNH will be challenged to continue with its recent outperformance versus the S&P-500. I would look to reinstate this name on a break below $60."

For an analyst ratings summary and ratings history on UnitedHealth Group click here. For more ratings news on UnitedHealth Group click here.

Shares of UnitedHealth Group closed at $63.80 yesterday.

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