UnitedHealth Group (NYSE: UNH) is scheduled to report its Q2 2023 results on Friday, July 14. We expect UnitedHealth to post revenue and earnings in line with the street expectations. The company will likely continue to benefit from the increased contribution of the Optum Health business, while its health insurance business should benefit from increased memberships. Investors will be closely monitoring the medical costs in Q2, as the company’s management expects a rise in this metric in the near term. Not only do we expect the company to navigate well over the latest quarter, our forecast indicates that UNH stock is undervalued, as discussed below. Our interactive dashboard analysis of UnitedHealth’s Earnings Preview has additional details.
(1) Optum Health To Continue To Drive Top-Line Growth
- Trefis estimates UnitedHealth’s Q2 2023 net revenues to be around $91 billion, reflecting a 14% y-o-y growth and aligning with the consensus estimate.
- The health insurance business is expected to see steady sales growth led by an increase in total membership.
- Optum Health, which provides care through local medical groups, has led the company’s top-line growth in recent quarters, a trend expected to continue in Q2.
- 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 Healthcare acquisition in Q4 2022.
- Our dashboard on UnitedHealth Group Revenues has more details on the company’s segments.
- Looking at Q1 2023, UnitedHealth reported a 15% rise in total revenue, led by double-digit gains for both UnitedHealth and Optum segments.
(2) EPS likely to align with the consensus estimates
- UnitedHealth’s Q2 2023 adjusted earnings per share (EPS) is expected to be $6.10 per Trefis analysis, just four cents above the consensus estimate of $6.06.
- UnitedHealth’s adjusted net income of $5.9 billion in Q1 2023 reflected a 13% rise from its $5.2 billion figure in the prior-year quarter, led by 14% sales growth partly offset by a slight decline in net margin. On a reported basis, operating margin expanded ten bps to 8.8% in Q1 2023. Our dashboard on UnitedHealth’s Operating Income has more details.
- Last month, the company’s management stated that there is a rise in medical costs as more people are getting elective procedures that were earlier postponed during the pandemic. This is likely to weigh on the bottom line in the near term.
- UnitedHealth’s medical care ratio stood at 82.2% in Q1 2023. compared to 82.0% in the prior-year quarter.
- For the full-year 2023, we expect the adjusted EPS to be higher at $25.00 compared to $22.19 in 2022.
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(3) UNH Stock Is Undervalued
- We estimate UnitedHealth Group’s Valuation to be around $600 per share, reflecting a 30% upside from the current market price of $462.
- This represents a 24x forward P/E multiple based on our earnings forecast of $25.00 on a per-share and adjusted basis and compares with the last three-year average P/E multiple of 21x. Given the double-digit earnings growth seen in recent years, we have assigned a higher P/E multiple for UNH compared to its historical average. This trend is expected to continue in the near term.
- UNH stock has seen a 6% fall in a month, primarily due to the company’s management talking about the expected rise in medical costs.
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.
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|S&P 500 Return||-1%||15%||96%|
|Trefis Multi-Strategy Portfolio||0%||19%||282%|
 Month-to-date and year-to-date as of 7/10/2023
 Cumulative total returns since the end of 2016