UnitedHealth Stock To Rise Post Q1 Results?

UNH: UnitedHealth Group logo
UnitedHealth Group

UnitedHealth Group (NYSE: UNH) is scheduled to report its Q1 2021 results on Thursday, April 15. We expect UnitedHealth to likely post revenue and earnings above the street expectations, driven by higher prescription volume and continued expansion of Optum Health. We expect the company to navigate well based on these trends over the latest quarter.

Our forecast indicates that UnitedHealth’s valuation is around $403 per share, which is roughly 7% above the current market price of around $375. Our interactive dashboard analysis on UnitedHealth’s Pre-Earnings has additional details.

(1) Revenues expected to be slightly above the consensus estimates

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Trefis estimates UnitedHealth’s Q1 2021 net revenues to be around $69.4 Bil, slightly ahead of the $69.3 Bil consensus estimate. A deferment in elective surgeries amid the spread of Covid-19 impacted the overall prescription volume growth in the first half of 2020, but that trend has reversed over the recent quarters, and prescription volume is expected to trend higher going forward.

Now that over one-third of the U.S. population have received at least one dose of the Covid-19 vaccine, the overall economic activities are likely to move a step closer to normalcy, boding well for UnitedHealth’s business. The company’s Optum Health segment, which provides care through local medical groups, has been expanding its reach to 98 million people as of 2020 compared to 91 million in 2017. This has helped UnitedHealth’s top line growth over the recent past, and this trend will likely continue in the near term. UnitedHealth’s Q4 2020 sales were up 8% to $65.6 billion, led by gains in all segments. Our dashboard on UnitedHealth Group Revenues offers more details on the company’s segments.

2) EPS also likely to be ahead of consensus estimates

UnitedHealth’s Q1 2021 adjusted earnings per share (EPS) is expected to be $4.42 per Trefis analysis, just 1% above the consensus estimate of $4.36. UnitedHealth’s adjusted net income of $2.4 billion in Q4 2020 reflected a 35% drop from its $3.7 billion figure in the prior-year quarter. This can be attributed to increased operating costs during the pandemic. For the full-year 2021, we expect the adjusted EPS to be higher at $18.50 compared to $16.88 in 2020.

(3) Stock price estimate higher than the current market price

UNH stock though has underperformed the broader markets thus far in 2021 with the company’s share price rising just 7%, compared to a 12% rise for S&P500. This can largely be attributed to investor concerns over increased focus on public health plans by the new government, and its impact on UnitedHealth’s business. However, UnitedHealth has significantly diversified its revenue streams, with increased focus on Optum segments, and even on the insurance side, it has added 3.5 million Medicare Advantage members over the last 5 years, and it aims to add close to another million going forward. We don’t see any significant impact on UnitedHealth’s business in the near term. That said, the overall earnings growth in the near term will be impacted by higher medical costs, driven by growth in volume of elective surgeries and tests performed, as well as higher operating costs.

Going by our UnitedHealth Group’s Valuation, with an EPS estimate of around $18.50 and a P/E multiple of around 22x in 2021, this translates into a price of $403, which is 7% above the current market price of around $375.

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Earnings for the full year

While UNH stock may see a rise in the near term, 2020 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 Cerner vs. Humana.

See all Trefis Price Estimates and Download Trefis Data here

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