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Annotated article summary from this weekend's Barron's. Receive all our Barron's summaries by signing up here:

The Vital Signs Look Good by Jacqueline Doherty

Summary: Despite a backdating options scandal backdrop, CEO Stephen Hemsley says UnitedHealth's (UNH) innovative and diverse insurance, health care services and technology research businesses are well-positioned for a projected $4 trillion in healthcare spending by 2015. With $2.6 billion in cash, a 15 P/E, or $3.42/share, for 2007, and 13 P/E or $3.93 for 2008, UNH's $51 stock is valued slightly above competitors Aetna (AET) and Cigna (CI) because of its Medicare and Medicaid exposure-- though UNH recently issued a warning over lower Medicare enrollments. Sales have grown annually by 27% and profits by 34% since 2002. Last year, UNH generated $7b of operating earnings on revenue of $71.7b. Acquisitions and baby boomer revenue drivers like Ovations should help income grow 9%, to $78 billion in 2007. Once the options backdating is resolved, the company is expected to launch a possible $6b stock-buyback program. Though questions about Medicare's future and merger integration risks could hurt its bottom line, UNH's diversity should compensate. Barron's Bottom Line: Strong cash flow will likely cover any backdating fines. Sales and profit growth could push the $51 stock to the 70s by 2008 -- a 30% premium.

UNH 18-month chart:

UnitedHealth Investment

Related Links: UnitedHealth Reaffirms '07 OutlookMore On UnitedHealth Re-Imagining Stock CompensationBackdating at UnitedHealth: An Investor's Assessment

Source: UnitedHealth Robust Despite Backdating - Barron's