UnitedHealth’s Q1 To Benefit From Increased Membership

UnitedHealth Group (NYSE: UNH) is scheduled to report its Q1 2023 results on Friday, April 14. We expect UnitedHealth to post revenue in line and earnings slightly above the street expectations. The company will likely continue to benefit from the increased contribution of the Optum Health business, while its health insurance business will likely benefit from increased memberships. 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 align with the consensus estimates

• Trefis estimates UnitedHealth’s Q1 2023 net revenues to be around $89.8 billion, reflecting a 12.5% y-o-y growth and aligning with the consensus estimate.
• The health insurance business is expected to see double-digit steady sales growth led by an increase in total membership.
• 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.
• 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.
• Optum Insight segment should benefit from the Change Health acquisition last quarter.
• Our dashboard on UnitedHealth Group Revenues has more details on the company’s segments.
• Looking at Q4 2022, UnitedHealth reported a 12% rise in total revenue, led by double-digit gains for both UnitedHealth and Optum segments.

(2) EPS likely to be slightly above the consensus estimates

• UnitedHealth’s Q1 2023 adjusted earnings per share (EPS) is expected to be $6.15 per Trefis analysis, slightly above the consensus estimate of $6.13.
• UnitedHealth’s adjusted net income of $5.1 billion in Q4 2022 reflected an 18% rise from its $4.3 billion figure in the prior-year quarter, led by 12% sales growth and an 80 bps rise in operating margin to 8.3%. Our dashboard on UnitedHealth’s Operating Income has more details.
• For the full-year 2023, we expect the adjusted EPS to be higher at $24.95 compared to $22.19 in 2022.

(3) UNH Stock Has More Room For Growth

• We estimate UnitedHealth Group’s Valuation to be around $607 per share, reflecting an 18% upside from the current market price of $515.
• This represents a 24x forward P/E multiple based on our earnings forecast of $24.95 on a per-share and adjusted basis and compares with the last three-year average P/E multiple of 21x. We have assigned a higher P/E multiple for UNH compared to its historical average, given the double-digit earnings growth seen over the recent years, a trend expected to continue in the near term.