UnitedHealth Group (NYSE: UNH) is scheduled to report its Q4 2021 results on Wednesday, January 19. We expect UnitedHealth to likely post revenue short of, and earnings to be above, the street expectations. A continued rise in procedure volume will likely result in higher medical costs for the company. The medical costs ratio rose to 82% for the nine month period ending September 2021, compared to 78% in the prior year period. That said, higher prescription volume and continued expansion of Optum Health post pandemic induced lockdowns, 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. However, our forecast indicates that UnitedHealth’s valuation is around $470 per share, which is in-line with the current market price, implying that UNH stock is fully valued at its current levels. Our interactive dashboard analysis on UnitedHealth’s Pre-Earnings has additional details.
(1) Revenues expected to be slightly below the consensus estimates
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Trefis estimates UnitedHealth’s Q4 2021 net revenues to be around $72.4 billion, slightly below the $72.7 billion consensus estimate. With the economy opening up gradually, the prescription volume is expected to rise, bolstering the revenue growth for the company. In fact, the company’s management in its previous quarterly earnings conference call stated that the customer retention levels for its prescription business were strong for the 2022 selling season.
Furthermore, with the rising employment levels in the U.S., the employer sponsored plans for UnitedHealth likely aided its Q4 sales growth. The U.S. unemployment rate fell to 3.9% in December 2021, compared to 6.7% in December 2020.
Lastly, 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 37% y-o-y to $39.5 billion for the nine month period ending Sep 2021, 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 likely to be above the consensus estimates
UnitedHealth’s Q4 2021 adjusted earnings per share (EPS) is expected to be $4.38 per Trefis analysis, 1.6% above the consensus estimate of $4.31. UnitedHealth’s adjusted net income of $4.3 billion in Q3 2021 reflected a 28% rise from its $3.4 billion figure in the prior-year quarter, driven by sales growth as well as margin expansion. The company’s operating margins expanded 80 bps in Q3. Looking forward, for the full-year 2022, we expect the adjusted EPS to be higher at $21.90 compared to an estimated EPS of $18.91 in 2021.
(3) Stock price estimate in-line with the current market price
We estimate UnitedHealth Group’s Valuation to be around $470 per share which is in-line with the current market price. This represents a P/EBITDA multiple of 22 for the company based on our forecast for UnitedHealth Group EBITDA for the current fiscal year. 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 in 2022 and beyond, in our view. That said, UNH stock appears to be fully priced at current levels and investors may be better off waiting for a dip to buy the stock for higher gains, in our view.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Earnings for the full year
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