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UnitedHealth's Ratings Upgraded by A.M. Best, Outlook Stable

Zacks Equity Research
Updated
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Credit rating giant A.M. Best recently upgraded UnitedHealth Group Incorporated’s UNH Long-term Issuer Credit Ratings from “a” to “a+” and has also affirmed the Financial Strength Rating (FSR) of A (Excellent) for most UnitedHealthcare insurance subsidiaries. The outlook remains stable.

Additionally, the credit rating body has upgraded the Long-Term ICR of the company to “a-” from “bbb+” along with the Long-Term Issue Credit Ratings (Long-Term IR) to “a-” from “bbb+” for the existing senior unsecured notes and its Short-Term Issue Credit Rating (Short-Term IR) to AMB-1 from AMB-2. The outlook for the Credit Ratings is stable.

The credit rating giant has also assigned a Long-Term IRs of “a-” for the company’s recently marketed senior unsecured notes.

A.M. Best has also upgraded the FSR for Dental Benefit Providers of California, Inc. (San Francisco, CA), Nevada Pacific Dental (Las Vegas, NV) and National Pacific Dental, Inc. (Richardson, TX) from A- (Excellent) to A (Excellent) and the Long-term ICR from “a-“to “a”. The outlook of these ratings remains stable.

Ratings Representation

The rating agency acknowledges UnitedHealth’s balance sheet strength, its solid operating performance, extremely favorable business profile and strong enterprise risk management.

The rating upgrades represent the strengthening of risk-adjusted capitalization, steady strong premium growth, favorable earnings along with low volatility. The company’s significant nationwide presence, large and growing enrollment base, diversified premium revenues, business strategy and developed risk management program play an instrumental role behind its sturdy balance sheet and operating trends.

The solid risk-adjusted capitalization is supported by consistent profitability, conservative high credit quality asset collection, etc. However, it was partially offset by dividends to the parent entity. A significant level of liquidity at the company’s insurance operations is led by growing operating cash flows that are again supplemented by credit facilities with the parent company.

The operating performance of the company has been commendable along with top-line growth, rate hikes and organic growth. The credit rating agency expects the company’s operating margins to stay stable with the bottom line boosted by increased premium revenues.

A.M. Best also expects the company’s membership o continue growing but at a moderate pace, driven mostly by Medicare and Medicaid. UnitedHealth’s long-term partnership with AARP is the main driver of its strong growth in the senior market.

Business diversification that the company derives from its service segment named Optum is positively seen by the rating agencies. This segment, which provides services to the insurance operations of its main segment UnitedHealthcare, generates significant earnings and cash flow to the parent company, which are non-regulated and do not require approval for dividend payments.

Shares of this Zacks Rank #3 (Hold) stock have surged 37.58% in the past year, outperforming the industry’s growth of 31.39%.


 

Stocks to Consider

Investors interested in the medical industry might consider a few better-ranked stocks such as WellCare Health Plans, Inc. WCG, Anthem, Inc. ANTM and Humana Inc. HUM.

WellCare offers managed care services for government-sponsored health care programs. The stock sports a Zacks Rank #1 (Strong Buy) and managed to come up with an average four-quarter positive surprise of 51.70% You can see the complete list of today’s Zacks #1 Rank stocks here.

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Anthem operates as a health benefits company in the United States. With a Zacks Rank #2 (Buy), the stock delivered an average four-quarter beat of 7.22%.

Humana operates as a health and well-being company in the United States. It carries a Zacks Rank of 2 and pulled off an average four-quarter earnings surprise of 6.16%.

 

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