UNH Looks Cheap, But Is It a Value Trap or Treasure?

Here is why we think UnitedHealth (UNH) deserves consideration as a value stock.

• Reasonable Revenue Growth: 9.7% LTM and 11.3% last 3 year average.
• Cash Generative: Nearly 6.0% free cash flow margin and 7.3% operating margin LTM.
• No Major Shocks: UNH has avoided any revenue collapses in the last 3 years.
• Modest Valuation: Despite encouraging fundamentals, UNH trades at a PE multiple of 13.0
• Opportunity vs S&P: Compared to S&P, you get lower valuation, higher revenue growth, but lower margins

As a quick background, UnitedHealth provides diversified health care services, including consumer health benefit plans for various employers and individuals, and pharmacy care services like retail, home delivery, specialty, and clinical programs.

*LTM: Last Twelve Months

But do these numbers tell the full story? Read Buy or Sell UNH Stock to see if UnitedHealth still has an edge that holds up under the hood.

That is one way to look at stocks. Trefis High Quality Portfolio evaluates much more, and is designed to reduce stock-specific risk while giving upside exposure

Stocks Like These Can Outperform. Here Is Data

For 65 similar value stocks chosen as of mid 2024, consider the following stats for the subsequent 1 year period.

• Average peak return of 39.3% vs 14.4% for S&P, with maximum peak return of 133%
• Win rate of 60%; win rate represents % of stocks with positive return
• Average 1-year return of 14.6%, similar to S&P’s despite tariff instability

But Consider The Risk

That said, UNH isn’t immune to big drops. It fell 72% during the Global Financial Crisis and 42% in the Dot-Com bust. Even the milder sell-offs hit it hard — like 36% in the Covid crash, 24% in 2018, and nearly 19% during the recent inflation shock. Solid business doesn’t mean no risk. When the market turns sour, UNH can take a meaningful hit too.

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read UNH Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.