UnitedHealth Group (NYSE: UNH) is scheduled to report its Q3 2022 results on Friday, October 14. We expect UnitedHealth to post revenue and earnings slightly above the street expectations. The company will likely benefit from the increased contribution of the Optum Health business, while its private health insurance and pharmacy management businesses should see steady growth. Not only do we expect the company to navigate well over the latest quarter, our forecast indicates that UNH stock has more room for growth, as discussed below. Our interactive dashboard analysis of UnitedHealth’s Earnings Preview has additional details.
(1) Revenues expected to be slightly above the consensus estimates
- Trefis estimates UnitedHealth’s Q3 2022 net revenues to be around $80.6 billion, reflecting an 11.5% y-o-y growth and marginally above the $80.5 billion consensus estimate.
- The pharmacy management and health insurance businesses are expected to see steady sales growth.
- 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. In the first half of 2022, Optum Health sales were up 33% to $34.3 billion.
- The strong growth in the Optum Health business can be attributed to a rise in the number of patients served under the company’s value-based arrangements, including at-home services.
- Earlier this week. UnitedHealth closed the $13 billion acquisition of Change Healthcare, a health-tech company. It will help the company improve technology, including streamlining its administrative and payment processes.
- Our dashboard on UnitedHealth Group Revenues has more details.
- Looking at Q2 2022, UnitedHealth reported a 12.6% rise in total revenue, led by double-digit gains for both UnitedHealth and Optum segments.
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(2) EPS likely to be above the consensus estimates
- UnitedHealth’s Q3 2022 adjusted earnings per share (EPS) is expected to be $5.44 per Trefis analysis, slightly above the consensus estimate of $5.42.
- UnitedHealth’s adjusted net income of $5.3 billion in Q2 2022 reflected a 17.7% rise from its $4.5 billion figure in the prior-year quarter, led by 12.6% sales growth and a 50 bps rise in operating margin. Our dashboard on UnitedHealth’s Operating Income has more details.
- For the full-year 2022, we expect the adjusted EPS to be higher at $21.90 compared to the EPS of $19.02 in 2021.
(3) UNH Stock Has More Room For Growth
- We estimate UnitedHealth Group’s Valuation to be around $610 per share, reflecting an 18% upside from the current market price of $519.
- At its current levels, UNH stock is trading under 24x forward expected earnings of $21.90. This compares with the average of 20x seen over the last three years. However, we believe UNH deserves a higher multiple, given the double-digit earnings growth seen over the recent years, a trend expected to continue in the near term.
Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Stryker vs. UnitedHealth Group.
|S&P 500 Return||4%||-21%||67%|
|Trefis Multi-Strategy Portfolio||7%||-22%||211%|
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