What’s Happening With UnitedHealth Stock?

UNH: UnitedHealth Group logo
UnitedHealth Group

After over a 6% fall year-to-date, at the current levels, we believe UnitedHealth stock (NYSE: UNH) has more room for growth. UNH stock fell from $502 in early January to $470 now. The YTD -6% move for UNH marks a significant outperformance with -22% returns for the broader S&P500 index.

Looking at the longer term, UNH stock is up a solid 89% from levels seen in late 2018. This again marks an outperformance compared to some of its peers and the broader markets, with CVS Health stock rising 40%, Cigna stock up 21%, and the S&P 500 index rising 51% over the same period.

This rise over the last three years was driven by: 1. the company’s P/S ratio, which grew 40% from 0.7x in 2018 to 0.9x currently, 2. UnitedHealth’s revenue rose 30% to $380 billion (gross revenue) in 2021, compared to $286 billion in 2018, and 3. a 2% decline in its shares outstanding to 941 million currently, compared to 963 million in 2018. This has meant that the company’s revenue per share rose 36% to $404 from $297.

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The revenue growth over the recent past has been led by increased demand for its OptumHealth business, which provides health care through local medical groups. For perspective, OptumHealth’s revenue grew 124% between 2018 and 2021, compared to a 30% rise in revenue for the overall company.

UnitedHealth is also facing a delay for two of its announced acquisitions. Its $8 billion deal to acquire Change Healthcare is facing a legal challenge from the Department of Justice on antitrust grounds, while its $5 billion acquisition of LHC Group is being probed by the U.S. Federal Trade Commission, which has recently asked for additional details from the company, possibly delaying the closure of the deal. Both the acquisitions are positive for UnitedHealth. The LHC group acquisition will enhance the OptumHealth offerings, focused on providing non-hospital health services, including at-home and telehealth services. The increased focus on expanding its offerings of such services is expected to aid the company’s operating margins over the coming years. The Change Healthcare acquisition aims to streamline UnitedHealth’s administrative and payment processes.

UNH stock also faces headwinds from the current weakness in broader markets. The S&P500 has now entered a bear market territory with rising concerns of slowing economic growth given the high inflation, Fed uncertainty, and supply chain disruptions. We estimate UnitedHealth’s valuation to be $550 per share, reflecting a 17% upside from its current market price of $470, implying that investors may be better off using the recent dip to enter UNH stock for gains in the long run. Our valuation is based on a forward P/E ratio of 25x based on our earnings forecast of $21.85 on a per share and adjusted basis for full-year 2022. This compares with an average of 20x seen over the last three years.

While UNH stock has some room for growth, it is helpful to see how UnitedHealth’s 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 vs. Netflix.

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 Jun 2022
MTD [1]
YTD [1]
Total [2]
 UNH Return -5% -6% 193%
 S&P 500 Return 0% -14% 84%
 Trefis Multi-Strategy Portfolio -9% -27% 188%

[1] Month-to-date and year-to-date as of 6/14/2022
[2] Cumulative total returns since the end of 2016

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