UnitedHealth Group Incorporated (UNH)

Equity
US
Healthcare

RISK

RETURN

Key risk factors

Negligible price volatility

Good trading liquidity

Resilient to price shocks

Key return factors

Strong margins and returns

Overvalued vs peers

Weak growth

Company profileUnitedHealth Group Incorporated operates as a diversified health care company in the United States. It operates through four segments: UnitedHealthcare, Optum Health, Optum Insight, and Optum Rx. The UnitedHealthcare segment offers consumer-oriented health benefit plans and services for national employers, public sector employers, mid-sized employers, small businesses, and individuals; health care coverage and well-being services to individuals age 50 and older addressing their needs for preventive and acute health care services, as well as services dealing with chronic disease and other specialized issues for older individuals; Medicaid plans, children's health insurance and health care programs; health and dental benefits; and hospital and clinical services. The OptumHealth segment provides access to networks of care provider specialists, health management services, care delivery, consumer engagement, and financial services. This segment serves individuals directly through care delivery systems, employers, payers, and government entities. The OptumInsight segment offers software and information products, advisory consulting arrangements, and managed services outsourcing contracts to hospital systems, physicians, health plans, governments, life sciences companies, and other organizations. The OptumRx segment provides pharmacy care services and programs, including retail network contracting, home delivery, specialty and compounding pharmacy, and purchasing and clinical capabilities, as well as develops programs in the areas of step therapy, formulary management, drug adherence, and disease/drug therapy management. UnitedHealth Group Incorporated was incorporated in 1977 and is based in Minnetonka, Minnesota.

Valuation: Overvalued

Multiple

TTM

NTM

P/E

30.50

28.00

PEG

2.60

P/B

5.40

4.10

P/S

1.20

P/FCF

44.50

38.40

EV/EBITDA

28.40

14.10

Considering past and projected metrics, the stock is 'expensive' compared to its peers. Specifically, the stock is fairly valued on P/E, neutral on EV/EBITDA, and overpriced on P/FCF.

Performance: Mixed

The stock's performance has been mixed in the past six months, with growth following a decline. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). It has underperformed this peer group by 7ppts over six months and grown 3ppts faster in the past month. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is neutral.

Analyst view: Somewhat favourable

The average target price is 559 and suggests 10% upside potential. Usually, this means a HOLD recommendation among investment firms. This neutral recommendation suggests no significant price movement, up or down, in the next 12 months. The most optimistic analyst has a target price of 675.0. This translates into 33% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 460.0. This is equivalent to 9% downside potential in the worst case.

Profitability: Strong

RoE

UnitedHealth Group Incorporated reported a return on equity (RoE) of 17.5% in the last 12 months, down from 26.3% in FY23. The market consensus projects an RoE of 37.5% in FY24, again ahead of its peers.

RoA

Another important profitability metric, return on assets (RoA), amounted to 5.5% in the last 12 months, a decrease from 8.5% in FY23. The market analysts predict that RoA will be 11.8% in FY24, more robust than its peers in this period.

RoCE

In the last 12 months, the return on capital employed (RoCE) declined to 8.6%, below the peers. The consensus estimate for FY24 for RoCE is 26.5%, however, this time ahead of the peers.

Net margin

EBITDA margin

Historically, UNH has reported modest net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 4.1%, down from 6.1% in FY23. The company has reported modest EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 4.8% in the last 12 months, a decline from 9.3% in FY23.

RoIC / WACC = 2.5(strong value creation)

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 2.5 in the past several years. This ratio implies a strong shareholder value creation.

Growth: Weak

Revenue

EBITDA

EPS

Free cash flow

UNH reported revenue of USD 378 372mn in the last 12 months, up 2% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS fell 31% from FY23 to USD 16.50. Market expects EPS to reach USD 27.62 in FY24.Revenue growth has been constrained in the past several years (negative-to-neutral), while EBITDA has declined rapidly trend in recent years (strongly negative). Net income has fallen in recent years (negative). Free cash flow has naturally followed the declining EBITDA. We emphasize the highly volatile dynamics of EBITDA and FCF. On the positive side, revenue dynamics is very stable.

Dividends: Decent

Dividend paid

Dividend yield

The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, and there is an evident trend. In the past 12 months, the dividend yield has been moderate and on par with its peers. On average, the company pays dividends quarterly, which may appeal to investors valuing a regular income stream.

Default risk: Moderate

The risk of default is moderate. We note solid return on capital, low margin volatility, and solid cash flow generation, among the positive credit factors. Among the negative credit factors, we point to slow historical revenue growth, bleak profitability, and poor working capital management.

Volatility: Negligible

In normal market circumstances, UNH is not volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will stay within a narrow range. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to minimal.

Stress-test: Resilient

In highly turbulent market conditions, UNH is not overly volatile. In other words, the stock will fall less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be low.

Selling difficulty: Low

UNH boasts high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and remains mildly favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.

Country risk: Very low

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

Other risks: Negligible

No other major risks have been identified.