Group

UnitedHealth Group Inc. (UNH) with 87,138 million USD operating revenue in the year 2009 is the country’s biggest managed care provider. It ranks 21 in Fortune 500. There are three factors which investors normally use to evaluate a company’s stock.

1. The most important criteria in evaluating a company’s stock is Earnings per Share (EPS). In the year 2009, the UNH made 3,822 million in profit. It resulted in 3.24 EPS which is not only the company’s highest EPS for the last five years, but is also higher than the managed care industry’s EPS average of 3.07.

2. Return on Assets (ROA) is another important factor. It determines how profitable a company is relative to its total assets. In the year 2009, the UNH has 6.6% ROA which is greater than the industry’s ROA average of 5.7.

3. Another factor which determines a company’s stock value is Market Cap and Cash Flow. As of now the Market Cap of the UNH’s is 33,327 million USD and Free Cash flow is 5,625 million USD.

Despite the soaring profit, high cash flow, and above average EPS and ROA the UNH’s stock performance is -4.63% YTD. It signifies that there are other factors apart from the company’s overall performance which are influencing the company’s stock performance.

I concluded the following factors to be influencing the UNH’s stock price.

1. An increase in physician and hospital costs has amplified the medical cost ratio. Managed care industry does not have control on this cost and in the coming years it will be higher than the current cost. This will translate into higher revenue compared to modest profit.

2. In the last few year pharmaceutical costs increased significantly. It is due to high prices of patent drugs as well as increase in use of specialty drugs.

3. States’ funding for Medicare and Medicaid are either frozen or decreased due to the current recession,

4. In the new health care legislation, the managed care industry has the highest tax increase. When the exchange rule is applied in 2014,...