Apart from this, I believe UnitedHealth Group will also take the advantage of Tricare investment. UnitedHealth Group has won Tricare’s contract for coming five years in order to provide Healthcare services to millions of beneficiaries in 21 states of the western region. UnitedHealth will start its operations in April 2013 serving more than 3 million people. Furthermore, Tricare will also invest ~$20.4 billion over the contract period on health benefits. This contract will fetch ~$1.4 billion for UnitedHealth during the period by managing the regional network.
Looking at the strong fundamentals, I expect the company to be on a growth track in upcoming years. This growth will be definitely reflected in its stock price in the future. Therefore, I recommend a buy for this stock.
WellPoint, Inc. (NYSE:WLP)
WellPoint quarter four earnings reported 38.4% increase in revenue to $464.2 million as compared to last year. This earnings growth was in line with market expectations. The company’s management is expecting further growth in the coming years due to future acquisition plans.
WellPoint has recently announced its full acquisition of Amerigroup Corporation for ~$4.9 billion. This acquisition has enhanced its operations in 20 states of the US and boosted up its total number of beneficiaries to 36 million. A total of 4.5 million beneficiaries have been added due to this acquisition. This expansion will continue to lift WellPoint’s earnings in the coming years.
With the strong cash flow figures, WellPoint may also initiate its capital restructuring program in order to maintain its financial flexibility. I expect, WellPoint may spend around $2 billion on dividends and share repurchases during financial year 2013. Apart from share repurchases, WellPoint will also utilize its strong cash flow to repay outstanding bonds of Amerigroup worth $600 million. In spite of this repurchase/dividend and debt retirement, WellPoint will have around $700 million left for further expansion plans in 2013.
Along with possible growth from the new acquisition, WellPoint will spend around $300 million on its future expansion. Keeping its expansion in mind, I think, the company’s per share earnings to grow from $7.60 to $7.80 in 2013. Therefore, I recommend a buy for this stock.
Conclusion
All the three stocks discussed above have posted good quarterly results. Moreover, their strong future fundamentals make them an attractive option for investors. Expansion of the global healthcare industry particularly the expected growth in the United States and many other emerging markets including the BRIC countries should further provide upside to these stocks. All the three companies have been performing tremendously in the US and growing globally well over the market expectations. Expecting a long-term continuous growth, I recommend a buy for all the three stocks.
The article Healthcare Stocks That Will Generate Strong Returns originally appeared on Fool.com and is written by Madhu Dube.
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