Will UnitedHealth Stock See Higher Levels Post Q1 Results?

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UnitedHealth Group

UnitedHealth Group (NYSE: UNH) is scheduled to report its Q1 2022 results on Thursday, April 14. We expect UnitedHealth to likely post revenue in line and earnings above the street expectations. Over the recent quarters, the company has seen an increased contribution from its Optum business segments, a trend expected to continue going forward as well. The company’s businesses, including private health insurance and pharmacy management, are likely to benefit from post-pandemic economic growth. Last month, the company announced the acquisition of LHC Group – a home-health company – for $5.4 billion in cash. UnitedHealth already offers managed care and health care services through its Optum businesses, and the addition of home health complements its health offerings. While we expect the company to navigate well over the latest quarter, our forecast indicates that UNH stock is fully valued at its current levels, as discussed below. Our interactive dashboard analysis of UnitedHealth’s Earnings Preview has additional details.

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

  • Trefis estimates UnitedHealth’s Q1 2022 net revenues to be around $78.8 billion, in-line with the consensus estimate.
  • With the economic growth picking up pace, the prescription volume is expected to rise, bolstering the revenue growth for the company.
  • Furthermore, with the rising employment levels in the U.S., UnitedHealth’s employer-sponsored plans likely aided its Q1 sales growth. The U.S. unemployment rate fell to 3.6% in March 2022, compared to 6.7% in December 2020 and 3.9% in December 2021.
  • Optum Health, which provides care through local medical groups, has seen substantial growth over the recent quarters, a trend expected to continue in the near term.
  • For perspective, Optum Health’s revenue grew 36% y-o-y to $54.1 billion in 2021, compared to just 12% overall gross revenue growth for the company. Our dashboard on UnitedHealth Group Revenues has more details.
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(2) EPS likely to be above the consensus estimates

  • UnitedHealth’s Q1 2022 adjusted earnings per share (EPS) is expected to be $5.45 per Trefis analysis, slightly above the consensus estimate of $5.37.
  • UnitedHealth’s adjusted net income of $4.3 billion in Q4 2021 reflected a significant 77% rise from its $2.4 billion figure in the prior-year quarter, driven by sales growth and margin expansion.
  • The company’s operating margins expanded 210 bps y-o-y in Q4.
  • For the full-year 2022, we expect the adjusted EPS to be higher at $21.85 compared to EPS of $19.02 in 2021.

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

  • We estimate UnitedHealth Group’s Valuation to be around $532 per share, which aligns with the current market price.
  • This represents a forward P/EBITDA multiple of 15.4x for the company based on our forecast for UnitedHealth Group EBITDA.
  • While we expect the company to see strong earnings growth over the coming years, driven by Optum and increased Medicare enrollments, UNH stock appears to be fully priced at current levels. We believe that investors may be better off waiting for a dip to buy the stock for higher gains, in our view.

While UNH stock looks fully valued, it is helpful to see how UnitedHealth Group Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for UnitedHealth Group vs. Devon Energy.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Apr 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 UNH Return 5% 6% 233%
 S&P 500 Return -3% -8% 96%
 Trefis Multi-Strategy Portfolio -2% -9% 257%

[1] Month-to-date and year-to-date as of 4/13/2022
[2] Cumulative total returns since the end of 2016

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