An actual investment idea?
Ladies and Gents... errr, just Gents I guess,
I present to you an actual investment idea! Stock is UnitedHealth Group (symbol UNH).
The company is the largest diversified health and well-being company. Basically they are a health insurance provider competing with such companies as WellPoint, Aetna, and Blue Cross/Blue Shield. The stock hit a high of 64.61 in December and has since tanked almost 30%.
Why? There is a "scandal" about the price of option grants given to the company's CEO. Basically, they are being charged with making the strike prices too low, resulting in the CEO's net worth exceeding $1 billion. However, it is important to note that said shares represent less than 1/2 of 1% of the outstanding shares.
And the reason that the CEO is worth more than $1 bilion is really a function of his outstanding job of increasing shareholder value. Had he provided market returns, his share of the company would only be worth $4 million. But because this company has been a hockey stick performer, he has made himself rich. And we all know that Americans don't like when other Americans get rich.
Other things are at work here besides said "scandal." The sector as a whole was a hot performer until March or so and then was heavily sold off (all health insurance companies are down). Of course, the new hot sector is materials... and there has been a serious flight in that direction.
At any rate, I have attached a pretty good Citigroup report that I think covers the basics. He is calling for price appreciation of as much as 50%. Feel free to discuss.
https://mywebspace.wisc.edu/dcartwright/web/unhcitireport.pdf?uniq=-cdz9sx
I present to you an actual investment idea! Stock is UnitedHealth Group (symbol UNH).
The company is the largest diversified health and well-being company. Basically they are a health insurance provider competing with such companies as WellPoint, Aetna, and Blue Cross/Blue Shield. The stock hit a high of 64.61 in December and has since tanked almost 30%.
Why? There is a "scandal" about the price of option grants given to the company's CEO. Basically, they are being charged with making the strike prices too low, resulting in the CEO's net worth exceeding $1 billion. However, it is important to note that said shares represent less than 1/2 of 1% of the outstanding shares.
And the reason that the CEO is worth more than $1 bilion is really a function of his outstanding job of increasing shareholder value. Had he provided market returns, his share of the company would only be worth $4 million. But because this company has been a hockey stick performer, he has made himself rich. And we all know that Americans don't like when other Americans get rich.
Other things are at work here besides said "scandal." The sector as a whole was a hot performer until March or so and then was heavily sold off (all health insurance companies are down). Of course, the new hot sector is materials... and there has been a serious flight in that direction.
At any rate, I have attached a pretty good Citigroup report that I think covers the basics. He is calling for price appreciation of as much as 50%. Feel free to discuss.
https://mywebspace.wisc.edu/dcartwright/web/unhcitireport.pdf?uniq=-cdz9sx
posted by Fresh at
5:13 PM
3 Comments:
Doug-
I could care less about the options scandal, although it shows that management pretty much has no ethics. Do you have an intiating coverage report that would tell me why they are going to make money in the future?
Matt
1.) The options scandal (which I'm not sure even qualifies as a scandal) was orchestrated by the board and not the CEO. I am not sure that it qualifies as a scandal because they are accused of setting option strikes too low, whatever that even means. In any case, again the primary value of the options comes from the fact that the CEO has kicked some serious ass in the few years. If anything, you can attribute it to the board's incompetence perhaps rather than its lack of ethics. I am not sure that is any more reassuring.
2.) Nothing has changed operationally about the firm. They still charge insurance premiums based on the probability of a payout and the cost of said payout plus a mark up.
3.) I assume that people will continue to carry health insurance in the future. I believe that as the American population becomes more educated and grows older, this will become increasingly important.
4.) One major threat would be the fact that they use past data to estimate future payouts. If something were to change quickly to cause people to start visiting doctor's more often, they could be in a bit of trouble. Bird flu might be an example of this something.
The also have some of the best tech systems in the industry which has allowed them to price the preimums very attractively. UNH medical cost ratio is one of the best around and consistenly does any outstanding job in M&A, although I am very bias here as I have friends in their M&A dept. The other issue some had was UNH multiples relative to their peers. I believe it deserves a preimum but some would rathter take WLP at the discount. I think the MGMT scandle will be resolved and that MGMT does have a high degree of integrity. Basically, their best of breed that has also gotten into Medicare with the PacificCare acquisition, thus should help drive growth due to the recent new medicare laws. Disclaimer: I am no healthcare expert, just my 2 cents.
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