UnitedHealth Group (NYSE: UNH) is a healthy investment, but that doesn’t mean its share prices won’t fall. The company’s Q1 results were better than expected and driven by strength in both segments, but guidance was tepid. The takeaway is that this company is growing, but its relatively high 21X valuation is capping gains now.

This may result in a pullback to the $500 level or lower, but risk-averse income investors looking for robust distribution growth should cheer the news. A pullback to firmer support levels will present a buying opportunity, and it all takes is a little patience and capital to cash in on it.

UnitedHealth Group Grows, Invests In Growth

UnitedHealth Group is benefiting from the double tailwind of increasing headcounts and deepening penetration of services. This combination resulted in $91.9 billion in net revenue for the quarter, up 14.7% compared to last year, and beat the Marketbeat.com consensus by more than 250 basis points. Double-digit gains in both the UnitedHealth and Optum segments drove the strength. Optum led with a gain of 25% YOY, with UnitedHealth putting in a solid performance with 13% growth. 

“Our strong, enterprise-wide growth this quarter is a direct result of our colleagues’ unwavering commitment to offering more health services to more people and connecting consumers with greater access to high-quality, affordable care,” said Andrew Witty, chief executive officer of UnitedHealth Group.

The margin news is favorable as well, although mixed regarding expansion. The net expense ratio climbed to 16% to drive earnings above consensus. The mixed part is that the net income margin fell 20 basis points compared to last month and rose 30 basis points compared to last year.

The takeaway is that adjusted EPS grew 14% compared to last year and exceeded expectations by $0.18. This led to increased guidance; but not enough to inspire a rally. The company raised its full-year guidance for earnings by a dime to $24.50 to $25.00, which aligns with the consensus of $24.95. 

UnitedHealth Dividend And Capital Returns Are Safe 

UnitedHealth isn’t a high-yield stock, but the payout is offset by capital growth, distribution growth and share repurchases. The company’s adjusted FCF came in at $5.1 billion for the quarter and returned $3.5 billion in dividends and repurchases. The salient details about the dividend are that it is expected to grow in the high teens, and the company only pays 28% of its earnings. With EPS growth running in the high single digits, this pace could continue for several years. 

Marketbeat’s analyst tracking tools haven’t picked up new commentary yet but the trend leading into the release is bullish. The sentiment of 15 analysts has held steady at Moderate Buy for the last year while the price target trended higher. The price target is about 17% above the current action, putting the market at a new all-time high.

The chart is questionable. The market broke the trend earlier this year and seems to confirm that move. If the market can’t get back above the trend line, expect solid resistance at the all-time high. A move above the all-time high is possible; the market should trend higher in that scenario. If not, it will remain range bound at current levels until a new catalyst emerges.