United Health Q3 earnings 2011: 7 percent increase in Sales

UnitedHealth Group (UNH) today reported third quarter results, highlighted by net earnings of $1.17 per share on.

The Firm's consolidated third quarter 2011 revenues of $25.3 billion increased $1.6 billion or 7 percent year-over-year. Third quarter earnings from operations were $2.1 billion and net earnings were $1.3 billion or $1.17 per share, an increase of 3 cents per share from third quarter 2010 results.

Year-to-date 2011 adjusted operating cash flows increased $210 million year-over-year to $5 billion. Accounts receivable of eight days was stable year-over-year. Claims payable decreased two days year-over-year to 47 days.

The Firm's quarter-end debt to debt-plus-equity ratio of 30 percent was consistent year-over-year.Year-to-date, annualized return on equity was 19.2 percent and the Firm repurchased nearly 18 million shares for $839 million in the third quarter, bringing year-to-date repurchase activity to 46 million shares for $2.1 billion.

UnitedHealth Group paid $172 million in dividends in the third quarter of 2011, an increase of 24 percent year-over-year.

Stephen J. Hemsley, president and chief executive officer of UnitedHealth Group, said, “We are generating consistent, strong growth by delivering increased value to health care benefits and health care services customers through practical innovation, useful technologies and responsive and compassionate service.” The Company now forecasts 2011 revenues to exceed $101 billion, net earnings in the range of $4.40 to $4.45 per share and cash flows from operations of approximately $6.2 billion. Each of these has been increased from the previous outlook.

Chart analysis by Morningpick.
UNH shares are down today 5.21 percent while the S&P 500 is currently up 2.30 percent. That's an 800 basis point swing which is significant BUT the swing may favor the potential buyer for a swing in the opposite direction. Today's drop may be an over-reaction and one we could capitalize on.

With an increase in sales of 7 percent but profit essentially the same year-over-year, how do we play UNH shares which are now priced at 9.81 PE ratio (ttm) so we can capitalize on today's downtrend?

We could wait to find a low in the bottom trading range between $43 and $47 for the higher probability trade. RSI and MACD oscillators are turning down so waiting for them to turn up would be a good buy signal. We would encounter resistance at $47 and this may trigger us to exit our profits but if the price pushes through then we can enter more positions and trade in the second trading range between $47 and $51 focusing more though on $53 which will offer greater resistance. I went back in time and found a possible low of around $35 that is not inconceivable if the markets turn for the worse.

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