VALUATION HIGHLIGHTS

1. Optum (OptumHealth(Care Delivery), OptumInsight (Consulting), OptumRx (PBM)) constitutes 52% of the Trefis price estimate for UnitedHealth Group's stock.
2. United HealthCare (Employment & Individual, Medicare, Medicaid, International) constitutes 48% of the Trefis price estimate for UnitedHealth Group's stock.

WHAT HAS CHANGED?

UNH Stock Performance

UNH stock has shown strong gains of 35% from levels of $350 in early January 2021 to around $480 now (mid-April, 2024), vs. a similar change for the S&P 500 over this roughly three-year period.However, the increase in UNH stock has been far from consistent. Returns for the stock were 43% in 2021, 6% in 2022, and -1% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that UNH underperformed the S&P in 2023.

Latest Earnings

UnitedHealth Group reported total revenue of $99.8 billion in Q1 2024, reflecting a 9% y-o-y growth. This increase was driven by higher sales in both UnitedHealth and Optum segments, which grew 7% and 13% (y-o-y), respectively. The operating margin declined 85 bps to 8%. The company reported an adjusted EPS of $6.91 per share as compared to $6.26 in the prior year quarter.

Outlook for 2024

We forecast UnitedHealth Group to report $400 billion in total net revenue for 2024, reflecting a 3.5% y-o-y growth. We forecast the adjusted earnings to be $27.70 on a per-share and adjusted basis, which is in the middle of the company's provided guidance for adjusted earnings per share to be in the range of $27.50 to $28.00.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of UnitedHealth Group's value that present opportunities for upside or downside to the Trefis price estimate for the company's stock:

• Total U.S. Medicare Enrollments: UnitedHealth Group's Medicare & Retirement business is a significant source of value, according to Trefis estimates. This segment contributes 26% to the company's revenues and constitutes 21% of the Trefis price estimate. Medicare enrollments have hovered around 14 million over recent years. Considering a low population growth rate of <1%, Medicare is poised to remain the most vital contributor. Medicare Advantage is a privately managed alternative to the original Medicare, which the federal government governs. In the past few years, the market share of Medicare Advantage plans has been increasing, with UnitedHealth Group as the market leader. Strong market presence and diversified product portfolios have been drivers of this growth. We expect this growth to continue, backed by the aging population and the growing penetration of Medicare Advantage plans.
• UnitedHealthcare's Average Monthly Medicare Premiums: UnitedHealth has seen a gradual increase in its average monthly Medicare premiums from $398 in 2017 to $641 in 2022. This trend is expected to continue, and we estimate the figure to be north of $900 by the end of our review period. However, if the growth is slower and the average premium hovers around the $600 mark, there is a potential downside of 5% to the Trefis price estimate.
• Business Growth In OptumRx Division: Revenue from the OptumRx division has been increasing at an average growth rate of 9.5% between 2018 and 2022. By the end of the Trefis forecast period, we expect OptumRx to touch the $140 billion mark. If the division can post strong sales growth of over 10% annually, there will be a 5% upside to the Trefis price estimate.

BUSINESS SUMMARY

UnitedHealth Group ("UNH") is the largest health insurance company in the United States, with consolidated revenue of $324 billion in 2022. Through its UnitedHealthcare and Optum subsidiaries, the company provides health benefits and health services to its customers. In 2022, the total number of customers served by Optum Health was over 100 million.Its UnitedHealthcare insurance subsidiary operates in four primary divisions:

• UnitedHealthcare Employment and Individual (Private Insurance): Provides health benefit plans and services to national employers, corporations, small businesses, and individuals.
• UnitedHealthcare Community and State (Medicaid): Provides managed care services to state Medicaid programs, which serve economically disadvantaged or medically under-served individuals.
• UnitedHealthcare Medicare and Retirement (Medicare): Provides privately administered Medicare services to retirees as Medicare Advantage(Part C). It also provides prescription drug plans(Part D) as supplementary services.
• UnitedHealthcare International: Provides healthcare services to governments, corporates, and individuals in more than 130 countries, with a strong presence in Brazil.

The company's Optum subsidiary operates in three primary divisions:

• OptumHealth: Provides a range of specialized health and wellness services such as mental health treatment, substance abuse treatment, and individual counseling.
• OptumInsight: The consulting division of United Health Group provides data and analytics services, healthcare expertise, and technology to clients from the healthcare industry.
• OptumRx: A pharmacy benefits management business that processes prescription drugs for its customers through network pharmacies and helps them to manage costs.

SOURCES OF VALUE

UnitedHealthcare Employment and Individual is the most valuable business for UnitedHealth Group primarily due to its market leadership position. We expect this business to grow steadily in the future due to greater nationwide health insurance coverage and its dominant position in the market.