Citigroup calling UnitedHealth (NYSE:UNH) their new top pick with 60% 12-mo upside. Firm's opinion is that strong forecast future EPS growth present an opportunity to invest in a best-of-breed company at a peer group multiple that is depressed. With the options investigation complete, they expect investors to shift focus back to fundumentals. UNH is the best positioned MCO in key product areas, namely CDHP and seniors market.
UNH results confirm moderate cost trends with co. now expecting total medical costs at 7%-7.5% for the year. Favorable trend due to lower utilization of medical services. For 2007, UNH is pricing to 7%-8% even though cost trend is decelerating, leaving room for upside to guidance.
United exceeded Street expectations, reporting $0.79 EPS, +30% y-y. Company reiterated 15% EPS growth for 2007 off new 2006 guidance of $2.95-$2.97. Firm raising their 2006 EPS to $2.97 and maintain 2007-2009 EPS of EPS $3.45, $4.05 and $4.70, respectively.
Maintains Buy and $81 price tgt.
Notablecalls: The stock made its move yesterday. However, positive comments from Citi (and other firms) should drive some upside today too.
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