UnitedHealth is worth buying and can rally nearly 25%, Bernstein says

Published Tue, Jul 18 20235:55 AM EDTUpdated Tue, Jul 18 202310:50 AM EDT

UnitedHealth is worth buying as it still trades at a cheap valuation coming out of a good earnings report, according to Bernstein. Analyst Lance Wilkes upgraded the health insurance stock to outperform from market perform and raised his price target by $8 to $603. His new target implies shares could rise 24.6% over the next year from Monday's close. "We believe UNH is a best-in-class MCO and VBC company, and current valuation offers a unique opportunity to buy a piece of a business with a large runway of growth in front of it at very attractive valuation," he said in a note to clients Tuesday. Wilkes' move marks a reversal from last year's downgrade, which was tied to concerns around valuation being too high, utilization in 2023 and rate pressures. Now, he said those concerns are priced into the stock and valuation has fallen — from around 1.3 times earnings to 0.9 times earnings — to a level that undervalues the long-term growth opportunity. UnitedHealth on Friday beat Wall Street expectations on both lines for the second quarter . The company also said it was increasing the low end of its guided range for where full-year adjusted earnings should come in. "Overall, it was a solid print," he said. "We believe expectations were negative regarding rising medical costs and UNH in line print on MLR, their comments on stable costs, and raising of the guide led to the stock closing 7% up on Friday." Despite the post-earnings rally, the Dow Jones Industrial Average member is still down nearly 9% in 2023 despite the broader market's rise. Shares rose 0.6% before the bell Tuesday. Looking ahead, Wilkes said UnitedHealth has the potential to see price hardening in 2024 and "attractive" long-term growth through its value-based health care and government managed care, as well as from innovation business Optum. The low relative valuation also tells Wilkes that it's a good time to buy in. UnitedHealth trades at a 0.9 multiple relative to the S & P 500, near the Medicare for All lows of 0.85. That's also far off the 2022 high of 1.4, which he called "stretched." UNH YTD mountain UnitedHealth's drop in 2023 — CNBC's Michael Bloom contributed to this report.