3 Healthcare Stocks With Growing Earnings Under Analysts' Price Targets

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 |  Includes: HCA, MHS, UNH
by: Bret Jensen

The market broke its six week losing streak last week, but it seems we are in for a challenging summer. I think over the next few months it will pay to stay defensive. One of the sectors I'm looking to take positions in to do this is healthcare. Here are three health stocks that I believe are good values and are priced significantly under analysts' price targets.

HCA Holdings (NYSE:HCA) – HCA Holdings, Inc. offers health care services in the United States. The company owns, manages, or operates hospitals, freestanding surgery centers, diagnostic and imaging centers, radiation and oncology therapy centers, rehabilitation and physical therapy centers and various other facilities. The company's general acute care hospitals provide medical and surgical services, including inpatient care, intensive care, cardiac care, diagnostic services and emergency services, as well as outpatient services, which include outpatient surgery, laboratory, radiology, respiratory therapy, cardiology and physical therapy. Its psychiatric hospitals offer therapeutic programs, such as child, adolescent and adult psychiatric care, adult and adolescent alcohol and drug abuse treatment and counseling. As of December 31, 2009, it owned and operated 150 general acute care hospitals with 38,349 licensed beds and 7 general acute care hospitals with 2,269 licensed beds that are operated through joint ventures, as well as 5 psychiatric hospitals with 490 licensed beds

Valuation and Price Targets – HCA sells for under 12.5 times this year's earnings and less than 11.5 times consensus 2012's EPS. Consensus earnings estimates have significantly improved for 2011 and 2012 over last few months and last quarter's earnings easily beat estimates. HCA is priced for under 1 times its projected PEG and under .6 times annual revenues. Its recent purchase of the remaining interest in HCA -- HealthOne joint venture should add over ten cents a year in earnings per share by 2012. HCA is priced at $34.50 a share. Price target are $39 at Credit Suisse, Goldman is at $40 and Susquehanna has a price target of $43 on HCA.

MedcoHealth Solutions (NYSE:MHS) Medco Health Solutions, Inc., a healthcare company, provides clinically driven pharmacy services for private and public employers, health plans, labor unions, government agencies and individuals in the United States and internationally. The company's products and services include clinical management that comprises coverage management and utilization management programs; and RationalMed service, which analyzes patients available prescriptions, inpatient and outpatient medical and laboratory claim records and engages physicians, pharmacists and patients in making changes, as well as provides benefit plan designs.

Valuation and Price Targets – MHS is selling at just under 13.5 times this year's earnings and under 12 times next year's consensus estimate. The company has a PEG of .9 and is priced at just 1/3 of annual revenues. This low beta stock is projected to grow earnings by over 20% a year over the next three years by S&P. It has grown earnings by an average of 27% a year on average over the previous four years while growing revenues 11% a year over the same timeframe. The stock goes for $55 a share. Price targets are $68 at S&P and $70 at Credit Suisse.

UnitedHealth Group Incorporated (NYSE:UNH) – UnitedHealth Group Incorporated provides healthcare services in the United States. Its Health Benefits segment offers consumer -- oriented health benefit plans and services to national employers, public sector employers, mid -- sized employers, small businesses and individuals; and non -- employer based insurance options for purchase by individuals. It also provides health and well -- being services for individuals aged 50 and older; and for services dealing with chronic disease and other specialized issues for older individuals, as well as health plans for the beneficiaries of acute and long -- term care Medicaid plans.

Valuation and Price Targets – UNH sells for under 12 times projected 2011 earnings and less than 11 times 2012 consensus EPS. UNH has absolutely crushed earnings estimates the last four quarters and earnings estimates for 2011 and 2012 have been revised up significantly over the last two months. United Health has grown revenues an average of 12% annually over the last five years and is in the bottom half of its five year valuation range based on P/E, P/S, P/B and P/CF. UNH has a A -- rated balance sheet, yields 1.3% in dividends and sells at an approximate PEG of 1. UNH stock is selling at $50 a share. Price targets are $69 at Credit Suisse and $66 at the Street.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in UNH over the next 72 hours.