UnitedHealth Group Plunges to 3 Year Low

UnitedHealth Group (UNH) is plunging on news that WellPoint (WLP) has cut its earnings forecast. If you recall, UNH is company that does nothing but make huge profits and awful headlines.

For the record, UnitedHealth has said that it expects 2008 EPS of $3.95 to $4 a share. The company has publicly made this estimate not once, but twice. That would be a yearly increase of 13% to 14% over 2007. Not bad.

But now the stock is down below $40 a share. Yesterday it reached its lowest point since 2004. In 2005, the company made $2.48 a share. So the stock is the same price, but profits are about 60% higher.

In the above chart, the blue line is the stock price and it follows the left scale. The yellow is the EPS and it follows the right. The red part is the estimate. When the lines cross, the P/E ratio is 17.5.

Comments

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The sell off in this sector (especially UNH) appears excessive. I see lots of "smart", long term investors such as Capital Research, Dodge & Cox and Berkshire Hathaway...volatility is not risk, it is opportunity. This may be one of those situations where you hold your nose, fight your instincts to sell out of fear and buy...I suspect the prospect of a democrat president and larger majorities in both houses is also going to weigh on the valuation for some time.