As the US markets closed in negative territory on Thursday, there was plenty of news for investors and potential investors to digest. That being said, I wanted to examine two healthcare companies a bit closer, as the US Supreme Court announced what many are calling a landmark ruling with regard to healthcare here in the United States. Each of these companies were cited by Deutsche Bank as having the potential to be "a particularly attractive opportunity" at these levels, and I wanted to examine them further.
United Healthcare (NYSE:UNH), which trades in a 52-week range of $41.27 (52-week low) to $60.75 (52-week high), was trading as high as $60.50/share on Thursday. Shares were up roughly 2.1% at one point during trading today as the company staged a rally stemming from the US Supreme Court's ruling regarding the Patient Protection and Affordable Care Act. Along with Aetna (NYSE:AET) and Humana (NYSE:HUM), UNH noted that it would also be expanding parts of the law indefinitely to include dependent coverage to age 26, as well as no limit on lifetime payouts per policy holder.
I believe UNH is very attractive at these levels, for several reasons. First, by increasing their dependent coverage to the age of 26, they are able to give themselves an edge over some of the other competitors within the marketplace have cut a dependent's coverage off as early as age 21. Second, EPS growth over the last four quarters has surpassed analysts' estimates by an average of 13.1%, which is to me is pretty impressive. Finally, the company trades at a P/E ratio of 12.37 making the stock very inexpensive at current price levels. For potential shareholders looking to establish a position in United Healthcare, I'd begin with a medium position and then increase that position as earnings and dividend dates approached.
Tenet Healthcare Corp. (NYSE:THC), which trades in a 52-week range of $3.46 (52-week low) to $6.54 (52-week high), was trading as high as $5.64/share on Thursday. Shares closed up nearly 5.5% as the company staged a rally stemming from the US Supreme Court's ruling regarding the Patient Protection and Affordable Care Act. That being said, there were several other hospitals along with THC, such as Universal Health Services (NYSE:UHS), and LifePoint (NASDAQ:LPNT), that joined in the post-decision rally. Hospitals stand to benefit the most from this decision, as more insured patients coming through their doors will generate more quarterly revenue and essentially enhance each company's bottom line.
I think THC is very attractive at these levels, for two reasons. First, EPS growth over the last four quarters has been pretty sustainable, with two quarters surpassing estimates by an average of 131.5%, one quarter right in line with estimates, and one considerable miss during the fourth quarter of 2011, which in my opinion was just an anomaly. Second, earnings growth estimates for both the September quarter (250%) and for the year (48.6%), look very significant especially after digesting the Court's decision. For potential shareholders looking to establish a position in United Healthcare, I'd begin with a small position and then increase that position as earnings dates approached.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.