[Updated: Oct 20, 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 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 2016.
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