NEWSLETTER
© Reuters. UnitedHealth Group (UNH) Stock Rises on Wells Fargo and Citi Top Pick Upgrade
(Updated: January 2, 2024 at 11:40 am EST)
Universal health services Inc. (NYSE gained nearly 2% in premarket Tuesday following a rating upgrade by Wells Fargo analysts.
The analysts upgraded the rating from Equal Weight to Overweight while also raising the price target to an optimistic $177 from $144. Citi echoed the praise and reaffirmed UHS as a top pick for 2024.
The analysts' moves came after UHS disclosed today that the Medicaid managed segment of Nevada's SDP program, scheduled to begin Jan. 1, 2024, is expected to contribute approximately $140 million in Medicaid reimbursements for next year, after accounting for supplier taxes.
Analysts highlighted the attractiveness of hospital fundamentals, anticipating that they will remain attractive. Additionally, they expressed confidence in the resilience of dealer fundamentals.
“The performance of the Managed Care group in 2023 was poor. Starting the year with elevated valuations created a difficult situation, fundamental pressure from MA utilization/rates emerged, and PBM scrutiny intensified. Valuations are now generally closer to first quartile levels,” the analysts wrote in a note.
Addressing concerns about Medicaid's impact on margins, analysts noted a gradual and orderly effect, even as the impact of the redeterminations on enrollment appeared more fraught than initially expected.
Citi, maintaining its Buy rating, set a $170 price target for UHS, emphasizing its position as a Top Pick for 2024. The approval of the Medicaid portion of Nevada's SDP program further contributed to the positive outlook.
The analysts, led by Jason Cassorla, emphasized the program's potential to drive high single-digit EBITDA growth by 2024, particularly when combined with the recent MS Hospital Access Program contribution of $30-40 million.
Approval of the program is seen as bolstering UHS's growth trajectory from a relatively low base. Despite the challenges anticipated in 2024, this strategic move positions UHS for continued expansion and success.
