This Managed Care Organization Is Available at a Bargain Price: Aetna Inc. (AET), WellPoint, Inc. (WLP), UnitedHealth (UNH)

In addition, WellPoint, Inc. (NYSE:WLP)’s close business relationship with the non-profit Blue Cross and Blue Shield organization requires it to keep an unusually conservative balance sheet. This limits the company’s flexibility in acquiring companies in pursuit of growth.

On the other hand, UnitedHealth Group Inc. (NYSE:UNH) has an enormous network of health care providers, which enables it to acquire customers at a lower cost due to its superior offering. Its wide customer base, in turn, affords it significant bargaining power with which it can then offer its customers lower prices. As a result of this network effect and economies of scale, UnitedHealth Group Inc. (NYSE:UNH) is in a great position in the industry.

Investment Decision

However, while UnitedHealth Group Inc. (NYSE:UNH) clearly has a superior business, its stock price is not quite as attractive as Aetna’s. At just 9 times earnings, Aetna is attractive for investors who believe that its future profitability will not be significantly reduced by underwriting troubles or health reform.

The article This Managed Care Organization Is Available at a Bargain Price originally appeared on Fool.com and is written by Ted Cooper.

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