UnitedHealth Group (UNH 0.79%) is in the headlines again, this time, it's to announce that it is exiting Latin America. The announcement is just the latest in a series of news events in what has been a tumultuous year for the once-safe healthcare giant, whose shares are down a staggering 38% year to date as of June 13.
There's been a flurry of bad news surrounding this business, including a change in its CEO last month. Does the company exiting Latin America signal more challenges ahead for the business, and could that affect its long-term growth? Here's what you need to know about this latest development and whether or not you should consider investing in the healthcare stock today.
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UnitedHealth has been losing billions on its Latin American operations
In 2018, UnitedHealth acquired Chilean healthcare company Banmedica in a deal worth $2.8 billion. The deal, however, hasn't paid off for the big health insurer as it has incurred losses totaling more than $8 billion on its Latin American operations since the takeover.
While Latin America may possess some long-term growth potential, it's hard for investors to see much of a benefit from those operations. And without a breakout or mention of its Latin American operations in its most recent quarterly filings, investors may be surprised to know that UnitedHealth even had a presence in that part of the world. Now, it's reportedly looking at a deal worth $1 billion to offload Banmedica and to cut its losses there.
Why this could be a good move for UnitedHealth
UnitedHealth generates more than $400 billion in annual revenue, and while Latin America may have presented an appealing growth opportunity, it was by no means core to its operations. Right now, its focus is on cutting costs and improving its financial position. Getting rid of an unprofitable investment can be a good way to do that. Costs have been rising for UnitedHealth in recent years, and its profit margin is slim at around 5% of revenue.
In previous years, it may have been more tenable to absorb the losses in exchange for future growth opportunities. But as the business has come under pressure and its financials have been falling short of analyst expectations in recent quarters, that may simply no longer be the case.
Back in April, UnitedHealth slashed its guidance for the year, projecting its adjusted per-share earnings to come in between $26 and $26.50, down significantly from its previous forecast of $29.50 to $30. Exiting Latin America isn't going to suddenly fix its problems, but it's potentially a step in the right direction by focusing on cost-cutting measures to improve its financials.
NYSE: UNH
Key Data Points
Is UnitedHealth Group stock worth investing in today?
UnitedHealth Group isn't doing well and is now trading around its five-year lows. The stock has tumbled significantly and after the recent resignation of CEO Andrew Witty, it's now Stephen Hemsley who is once again leading the business (he previously served as CEO from 2006 to 2017).
What's encouraging is that the company is still targeting a long-run growth rate of 13% to 16%, suggesting that management believes there is a path to steer the business in the right direction, despite all the adversity it's facing right now.
Currently, shares of UnitedHealth Group trade at around 13 times trailing earnings, which can give investors a fairly good discount; the average S&P 500 stock trades at an earnings multiple of nearly 24. At such a steep reduction, investors are getting a good margin of safety with UnitedHealth Group stock today, and it can make for an attractive long-term buy -- as long as you're willing to be patient with it.
