Is UnitedHealth Stock Fully Priced At Around $300?

We believe there may be better places for your money than UnitedHealth’s stock (NYSE:UNH) at the present time. UNH trades at $307 currently and it has gained 5% in value so far this year. It traded at a pre-Covid high of $303 in February, and it is slightly above that level now. Also, UNH stock has gained 58% from the low of $194 seen in March 2020, as the company saw lower Medical Costs due to deferment of elective surgeries driving its earnings growth over the recent quarters, along with an expected growth in enrollments for government sponsored insurance plans due to an overall increase in unemployment. That said, lower Medical Costs is a temporary relief and the costs will shoot up as early as Q3 with a growth in elective procedures. In view of the strong rally in UNH stock since late March, we believe that the stock has little room for growth in the near future. Our conclusion is based on our detailed analysis of UnitedHealth’s stock performance during the current crisis with that during the 2008 recession in an interactive dashboard analysis.

2020 Coronavirus Crisis

Timeline of 2020 Crisis So Far:

• 12/12/2019: Coronavirus cases first reported in China
• 1/31/2020: WHO declares a global health emergency.
• 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
• 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, as Covid-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
• From 3/24/2020: S&P 500 recovers 51% from the lows seen on Mar 23, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.

In contrast, here’s how UnitedHealth stock and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

• 10/1/2007: Approximate pre-crisis peak in S&P 500 index
• 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
• 3/1/2009: Approximate bottoming out of S&P 500 index
• 1/1/2010: Initial recovery to levels before accelerated decline (around 9/1/2008)

UnitedHealth Stock Performance Over 2007-08 Financial Crisis

We see UNH stock declined from levels of around $41 in September 2007 (pre-crisis peak) to levels of around $17 in March 2009 (as the markets bottomed out), implying UNH stock lost 59% from its approximate pre-crisis peak. It recovered post the 2008 crisis, to levels of about $26 in early 2010, rising by 55% between March 2009 and January 2010.

S&P 500 Performance Over The 2007-08 Financial Crisis

S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied to levels of 1,124, rising by about 48% between March 2009 and January 2010.

Fundamentals

How Do UnitedHealth’s Fundamentals Look In Recent Years?

UnitedHealth’s Revenues grew a strong 54% from $157 billion in 2015 to $242 billion in 2019, primarily led by customer additions and growth in average billing. With the strong growth in revenues, the company’s margins also expanded from 3.7% to 5.7%, resulting in a stellar 136% EPS growth from $6.10 in 2015 to $14.55 in 2019.

Survival Check

Does UnitedHealth Have A Sufficient Cash Cushion To Meet Its Obligations Through The Coronavirus Crisis?

UnitedHealth’s total debt increased from $33.0 billion in 2016 to $40.7 billion in 2019, while its total cash increased from $13.3 billion to $14.2 billion over the same period. The company also generated $18.5 billion in cash from its operations in 2019, and it appears to be in a good position to weather the crisis.