Is UnitedHealth Group Stock Fully Valued At Its Current Levels of Around $500?

+9.55%
Upside
502
Market
550
Trefis
UNH: UnitedHealth Group logo
UNH
UnitedHealth Group

[Updated: Dec 17, 2021] UNH Stock Rise

The stock price of UnitedHealth Group (NYSE: UNH) has seen a rise of around 10% over the last month, while it is up 4% over the last week. UNH stock is trading around its 52-week highs of $497 currently. A couple of weeks back the company provided guidance for 2021 and 2022. The company expects revenue of $287 billion in 2021 and around $318 billion in 2022. It expects the bottom line to be in the range of $18.75-$18.90 in 2021 and $21.10-$21.60 in 2022. This compares with our current forecast of $284 billion revenue and $19.05 EPS estimate for 2021, and $308 billion revenue and $21.90 eps estimate for 2022. However, going by our  UnitedHealth Group Valuation of $470 per share, based on revised adjusted EPS  forecast of $19.05 and a P/E multiple of 25x in 2021, UNH stock appears to be fully valued at its  current levels, and it may be prudent for investors to wait for a dip for better potential gains. Also, the 25x P/E multiple compares with 19x-21x multiples seen over the recent years.

The recent rise in UNH stock was also fueled by the Fed’s decision to hold rates steady for now and providing a roadmap of three hikes in 2022, giving some relief to investors. Also, some of the Wall Street analysts have recently given a buy rating on UNH, bolstering its stock price appreciation. That said, the average of $492 price estimate per the analyst forecasts also suggests that UNH stock is richly valued.

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But what about the near term, given that UNH stock has seen a rise of 10% in a month? Going by its historical performance, there is a high chance of a rise in UNH stock over the next month. Out of 191 instances in the last ten years that UNH stock saw a twenty-one day rise of 10% or more, 127 of them resulted in UNH stock rising over the subsequent one-month period (twenty-one trading days). This historical pattern reflects 127 out of 191, or a 66% chance of a rise in UNH stock over the coming month. See our analysis on UnitedHealth Group Stock Chances of Rise for more details.

While UNH stock may see higher levels going forward, it is helpful to see how its peers stack up. Check out UnitedHealth Group Stock Comparison With Peers to see how UNH stock compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.

Calculation of ‘Event Probability‘ and ‘Chance of Rise‘ using last ten years data

  • After moving 4.1% or more over a five-day period, the stock rose in the next five days on 54% of the occasions.
  • After moving 10.5% or more over a ten-day period, the stock rose in the next ten days on 51% of the occasions
  • After moving 9.6% or more over a twenty-one-day period, the stock rose in the next twenty-one days on 66% of the occasions.

This pattern suggests that there are higher chances of a rise in UNH stock over the next five days, ten days, as well as over the next month.

UnitedHealth Group (UNH) Stock Return (Recent) Comparison With Peers

  • Five-Day Return: HCA highest at 5.2%; HUM lowest at 1.1%
  • Ten-Day Return: CVS highest at 12.5%; MOH lowest at 6.5%
  • Twenty-One Days Return: UNH highest at 9.6%; MOH lowest at -0.5%

Below you’ll find our previous coverage of UNH stock where you can track our view over time.

 

[Updated: Oct 19, 2021] UNH Stock Update

The stock price of UnitedHealth Group (NYSE: UNH) reached its 52-week high levels of around $433 last week after it announced its Q3 results, which were well above our estimates. The company reported revenues of $72.3 billion, up 11% y-o-y, and it compares with our forecast of $70.4 billion and $71.2 billion consensus estimate. The revenue growth was driven by a better than anticipated uptick in Optum Health segment. Our dashboard on UnitedHealth Group Revenues offers more details on the company’s segments.

Looking at the bottom-line, adjusted EPS of $4.52 per share (up 29% y-o-y) was comfortably above our forecast of $4.32 and $4.40 consensus estimate. This can be attributed to higher revenues as well as margin expansion. Furthermore, the company revised its earnings outlook upward with adjusted EPS now estimated to be in the range of $18.65 and $18.90, compared to its prior guidance range of $18.30 and $18.80.

An upbeat performance in Q3 cheered investors and the UNH stock is up 5% over the last five trading days, while it is up 10% over the last ten days. We have now revised our UnitedHealth Group Valuation to $470 per share (vs. $460 earlier) based on revised adjusted EPS  forecast of $19.05 and a P/E multiple of 24.7x. This marks a premium of over 10% from the current levels of $424 for UNH.

While UNH stock is likely to move higher in the near term, there are several peers in its sector that look like a better bet than UnitedHealth. Also, UnitedHealth Peer Comparison summarizes how the company fares against peers on metrics that matter.

 

[Updated: Oct 11, 2021] UNH Q3 Earnings Preview

UnitedHealth Group (NYSE: UNH) is scheduled to report its Q3 2021 results on Thursday, October 14. We expect UnitedHealth to likely post revenue and earnings below the street expectations. A continued rise in procedure volume will likely result in higher medical costs for the company. For perspective, the medical costs ratio rose to 82% in the first half of 2021, compared to 76% in the prior year period. That said, higher prescription volume and continued expansion of Optum Health post-pandemic, is likely to bolster the overall revenue growth for the company. We expect the company to navigate well based on these trends over the latest quarter. Also, our forecast indicates that UnitedHealth’s valuation is around $460 per share, which is roughly 12% above the current market price of around $408. Our interactive dashboard analysis on UnitedHealth’s Pre-Earnings has additional details.

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

Trefis estimates UnitedHealth’s Q3 2021 net revenues to be around $70.4 billion, up 8% y-o-y, but slightly below the $71.2 billion consensus estimate. With the economy opening up gradually, the prescription volume is expected to rise, bolstering the revenue growth for the company. Employment levels have also been trending higher over the recent months, and this is likely to aid the employer & individual insurance premiums for the company. Furthermore, the company’s Optum Health segment, which provides care through local medical groups, has seen strong growth over the recent quarters, a trend expected to continue in the near term. For perspective, Optum Health revenue grew 40% y-o-y for the first half of 2020, compared to just 12% overall top-line growth for the company. Our dashboard on UnitedHealth Group Revenues offers more details on the company’s segments.

2) EPS also likely to be below the consensus estimates

UnitedHealth’s Q3 2021 adjusted earnings per share (EPS) is expected to be $4.32 per Trefis analysis, just 2% below the consensus estimate of $4.40. UnitedHealth’s adjusted net income of $4.5 billion in Q2 2021 reflected a 34% drop from its $6.8 billion figure in the prior-year quarter. This can partly be attributed to increased medical costs over the recent quarters, compared to 2020, which benefited from deferment of elective surgeries during the lockdowns. For the full-year 2021, we expect the adjusted EPS to be higher at $18.77 compared to $16.88 in 2020.

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

Going by our UnitedHealth Group’s Valuation, with an EPS estimate of $18.77 and a P/E multiple of 24x in 2021, this translates into a price of $460, which is 12% above the current market price of around $408. While the 24x figure compares with levels of 19x – 21x seen over the recent years, we believe the P/E multiple will likely increase with better growth prospects over the coming years. UNH stock in 2021 was being weighed down partly due to investor concerns over increased focus on public health plans by the Biden administration, and its impact on UnitedHealth’s business. However, given the diversification led by Optum business, along with increased Medicare enrollments and post-pandemic recovery, the company is likely to see strong earnings growth going forward, in our view, and this should mean a revision in its P/E multiple.

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.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

Returns Dec 2021
MTD [1]
2021
YTD [1]
2017-21
Total [2]
 UNH Return 10% 41% 208%
 S&P 500 Return -1% 24% 109%
 Trefis MS Portfolio Return -1% 42% 282%

[1] Month-to-date and year-to-date as of 12/17/2021
[2] Cumulative total returns since 2017

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