Brian Wright, of Sterne Agee, gives all credit to the annual letter to shareholders from Berkshire Hathaway as the reason for upgrading shares of United Health from underperform to neutral. Here’s what Brian has to say in his own words:
“After reading the Berkshire Hathaway annual report last weekend, we were reminded that even value-oriented investors (that has been our historical recommendations approach) should understand that finding great businesses at a fair price is more important than average businesses at bargain prices. That clearly is the case with United Health Group, and while pricey relative to our inherent value bias, we have been too blinded by price in our search for value. We are correcting this unforgivable mistake with today’s report.
“Given that we have long acknowledged a great business, a great company, and a great management, why not just go all the way and raise the rating to Buy? Simplistically, we would like a better entry point. While we may not get it, Mr. Market usually provides opportunities when you are least expecting. We are least expecting it now as we see no near-term negative catalyst or significance for the company. In the meantime, we are raising our price target to $126 (from $105) or 18x our 2016 EPS estimate.”
United Health shares are trading around $114-$115, while Berkshire Hathaway Class B shares are trading at $146-$147.