UnitedHealth Group (UNH): Modestly Undervalued or Just Right?

UnitedHealth Group Inc (

UNH, Financial) recently experienced a daily loss of -3.04%, with a three-month loss of -1.79%. Despite these figures, the company reported an impressive Earnings Per Share (EPS) (EPS) of 22.35. This raises the question: is UnitedHealth Group modestly undervalued? This article aims to provide an in-depth valuation analysis of UnitedHealth Group. Read on to discover the intrinsic value of this healthcare giant.

Company Overview

UnitedHealth Group, one of the largest private health insurers, provides medical benefits to 50 million members worldwide. The company has attained massive scale in managed care through its leadership in employer-sponsored, self-directed, and government-backed insurance plans. Its continuous investments in Optum franchises have created a healthcare colossus spanning everything from medical and pharmaceutical benefits to outpatient care and analytics. This analysis will delve deeper into UnitedHealth Group’s financials to evaluate its current market value.

Understanding the GF Value

The GF Value is a proprietary measure that represents the intrinsic value of a stock. It is derived from a unique method that considers historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.

According to the GuruFocus Value calculation, UnitedHealth Group’s stock appears to be modestly undervalued. With its current price of $476.58 per share and a market cap of $441.50 billion, the stock’s long-term return is likely to be higher than its business growth due to its relative undervaluation.

Financial Strength

Investing in companies with poor financial strength carries a higher risk of permanent capital loss. Therefore, it’s crucial to thoroughly review a company’s financial strength before deciding to buy its stock. UnitedHealth Group’s cash-to-debt ratio is 0.71, worse than 68.42% of companies in the Healthcare Plans industry. However, GuruFocus ranks UnitedHealth Group’s overall financial strength as fair, at 7 out of 10.

Profitability and Growth

Investing in profitable companies carries less risk, especially those demonstrating consistent profitability over the long term. UnitedHealth Group has been profitable for 10 years over the past decade. With revenues of $348.50 billion and an EPS of $22.35 in the past 12 months, the company’s operating margin of 8.75% is better than 73.33% of companies in the Healthcare Plans industry. GuruFocus ranks UnitedHealth Group’s profitability as strong.

Growth is a critical factor in a company’s valuation. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of UnitedHealth Group is 10.8%, which ranks worse than 61.11% of companies in the Healthcare Plans industry. However, its 3-year average EBITDA growth rate is 13.1%, better than 76.47% of companies in the same industry.

ROIC vs WACC

Return on invested capital (ROIC) is a measure of how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. Ideally, the ROIC should be higher than the WACC. For the past 12 months, UnitedHealth Group’s ROIC is 10.9, and its WACC is 7.41.

Conclusion

In conclusion, UnitedHealth Group’s stock shows signs of being modestly undervalued. The company’s financial condition is fair, and its profitability is strong. Its growth ranks better than 76.47% of companies in the Healthcare Plans industry. To learn more about UnitedHealth Group stock, you can check out its 30-Year Financials here.

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