After Seeing Lower Levels In January, Is UnitedHealth Stock Now A Buy?

UNH: UnitedHealth Group logo
UnitedHealth Group

[Updated: Feb 2, 2022] UNH Stock Decline

The stock price of UnitedHealth Group (NYSE: UNH) has seen a fall of 6% over the last month. Much of this decline came in the first week of Jan when its industry peer – Humana – cut its 2022 forecast for Medicare membership growth by about half. This development impacted other health insurance stocks as well, with investors fearing a decline in Medicare membership growth. However, later on Jan 19, UnitedHealth reported its Q4 results, which were above our estimates. The company reported revenue of $73.7 billion (up 13% y-o-y), which was comfortably above our forecast of $72.4 billion and the consensus estimate of $72.7 billion. Similarly, the adjusted EPS of $4.48 was above our forecast of $4.38 and the consensus estimate of $4.31. The operating margin for the quarter stood at 7.5% compared with 5.4% in the year-ago quarter. Also, the company reaffirmed its 2022 guidance of revenues to be in the range of $317-$320 billion, and adjusted EPS to be in the range of $21.10-$21.60. Despite upbeat Q4 results, UNH stock has seen a rise of just 1% since it reported its numbers, given the volatility in the market.

Now that UNH stock has seen a fall of 6% in a month, will it continue its downward trajectory, or is a rise imminent? Going by historical performance, there is a strong chance of a rise in UNH stock over the next monthOut of 177 instances in the last ten years that UNH stock saw a twenty-one-day fall of 6% or more, 132 of them resulted in UNH stock rising over the subsequent one-month period (twenty-one trading days). This historical pattern reflects 132 out of 177, or about a 75% chance of a rise in UNH stock over the coming month, implying that UNH stock is a good bet at its current levels, in our view. See our analysis on UnitedHealth Stock Chance of A Rise for more details.

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Calculation of ‘Event Probability‘ and ‘Chance of Rise‘ using last ten years data

  • After moving 3.4% or lower over a five-day period, the stock rose in the next five days on 56% of the occasions.
  • After moving 2.5% or more over a ten-day period, the stock rose in the next ten days on 51% of the occasions
  • After moving -5.9% or more over a twenty-one-day period, the stock rose in the next twenty-one days on 75% of the occasions.

This pattern suggests that UNH stock has a marginally higher chance of a rise in next five to ten days, but it has a strong chance of a rise over the next one month.

UnitedHealth (UNH) Stock Return (Recent) Comparison With Peers

  • Five-Day Return: MOL highest at 7.5%; CI lowest at -1.8%
  • Ten-Day Return: MOL highest at 5.1%; CI lowest at -4.0%
  • Twenty-One Day Return: CVS highest at 3.2%; HUM lowest at -15.4%

[Updated: Jan 17, 2022] UNH Q4 Earnings Preview

UnitedHealth Group (NYSE: UNH) is scheduled to report its Q4 2021 results on Wednesday, January 19. We expect UnitedHealth to likely post revenue short of, and earnings to be above, the street expectations. A continued rise in procedure volume will likely result in higher medical costs for the company. The medical costs ratio rose to 82% for the nine month period ending September 2021, compared to 78% in the prior year period. That said, higher prescription volume and continued expansion of Optum Health post pandemic induced lockdowns, is likely to bolster the overall revenue growth for the company.

We expect the company to navigate well based on these trends over the latest quarter. However, our forecast indicates that UnitedHealth’s valuation is around $470 per share, which is in-line with the current market price, implying that UNH stock is fully valued at its current levels. Our interactive dashboard analysis on UnitedHealth’s Pre-Earnings has additional details.

(1) Revenues expected to be slightly below the consensus estimates

Trefis estimates UnitedHealth’s Q4 2021 net revenues to be around $72.4 billion, slightly below the $72.7 billion consensus estimate. With the economy opening up gradually, the prescription volume is expected to rise, bolstering the revenue growth for the company. In fact, the company’s management in its previous quarterly earnings conference call stated that the customer retention levels for its prescription business were strong for the 2022 selling season.

Furthermore, with the rising employment levels in the U.S., the employer sponsored plans for UnitedHealth likely aided its Q4 sales growth. The U.S. unemployment rate fell to 3.9% in December 2021, compared to 6.7% in December 2020.

Lastly, the company’s Optum Health segment, which provides care through local medical groups, has seen strong growth over the recent quarters, a trend expected to continue in the near term. For perspective, Optum Health revenue grew 37% y-o-y to $39.5 billion for the nine month period ending Sep 2021, compared to just 12% overall top-line growth for the company. Our dashboard on UnitedHealth Group Revenues offers more details on the company’s segments.

2) EPS likely to be above the consensus estimates

UnitedHealth’s Q4 2021 adjusted earnings per share (EPS) is expected to be $4.38 per Trefis analysis, 1.6% above the consensus estimate of $4.31. UnitedHealth’s adjusted net income of $4.3 billion in Q3 2021 reflected a 28% rise from its $3.4 billion figure in the prior-year quarter, driven by sales growth as well as margin expansion. The company’s operating margins expanded 80 bps in Q3. Looking forward, for the full-year 2022, we expect the adjusted EPS to be higher at $21.90 compared to an estimated EPS of $18.91 in 2021.

(3) Stock price estimate in-line with the current market price

We estimate UnitedHealth Group’s Valuation to be around $470 per share which is in-line with the current market price. This represents a P/EBITDA multiple of 22 for the company based on our forecast for UnitedHealth Group EBITDA for the current fiscal year. Given the diversification led by Optum business, along with increased Medicare enrollments and post-pandemic recovery, the company is likely to see strong earnings growth in 2022 and beyond, in our view. That said, UNH stock appears to be fully priced at current levels and investors may be better off waiting for a dip to buy the stock for higher gains, in our view.

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Earnings for the full year

While UNH stock may see higher levels in the near term, there are several industry peers that look like a better bet than UnitedHealth.  You will find other useful comparisons for companies across industries at Peer Comparisons.
What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.
Returns Feb 2022
MTD [1]
YTD [1]
Total [2]
 UNH Return 0% -6% -100%
 S&P 500 Return 0% -5% 102%
 Trefis MS Portfolio Return -4% -13% 241%

[1] Month-to-date and year-to-date as of 2/2/2022
[2] Cumulative total returns since the end of 2016

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