UnitedHealth Group (UNH): A Comprehensive Analysis of Its Market Value

UnitedHealth Group Inc (UNH, Financial) has recently been in the spotlight with a daily gain of 2.06% and a 3-month gain of 7.48%. The company's Earnings Per Share (EPS) stands at 22.35. But the question remains: is the stock fairly valued? This article delves into a detailed valuation analysis of UnitedHealth Group (UNH) to answer this question. We encourage you to read on for an in-depth look at the company's value.

Company Overview

UnitedHealth Group is one of the largest private health insurers in the world, providing medical benefits to about 53 million members globally, including 5 million outside the U.S. as of mid-2023. As a leader in employer-sponsored, self-directed, and government-backed insurance plans, UnitedHealth has obtained massive scale in managed care. Along with its insurance assets, UnitedHealth's continued investments in its Optum franchises have created a healthcare services colossus that spans everything from medical and pharmaceutical benefits to providing outpatient care and analytics to both affiliated and third-party customers.

Comparing the stock price and the GF Value, an estimation of fair value, provides an insightful perspective on the company's value. This approach efficiently paves the way for a more profound exploration of the company's value, ingeniously integrating financial assessment with essential company details.

Understanding GF Value

The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on three factors:

We believe the GF Value Line is the fair value that the stock should be traded at. The stock price will most likely fluctuate around the GF Value Line. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.

The stock of UnitedHealth Group (UNH, Financial) is believed to be fairly valued based on GuruFocus' valuation method. GF Value estimates the stock's fair value based on three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the stock's share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. On the other hand, if the stock's share price is significantly below the GF Value Line, the stock may be undervalued and have high future returns. At its current price of $514.57 per share, UnitedHealth Group has a market cap of $476.60 billion and the stock is believed to be fairly valued.

Because UnitedHealth Group is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.

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Financial Strength

Investing in companies with low financial strength could result in permanent capital loss. Therefore, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. UnitedHealth Group has a cash-to-debt ratio of 0.71, which ranks worse than 68.42% of 19 companies in the Healthcare Plans industry. Based on this, GuruFocus ranks UnitedHealth Group's financial strength as 7 out of 10, suggesting fair balance sheet.

Profitability and Growth

Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. UnitedHealth Group has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $348.50 billion and Earnings Per Share (EPS) of $22.35. Its operating margin is 8.75%, which ranks better than 73.33% of 15 companies in the Healthcare Plans industry. Overall, the profitability of UnitedHealth Group is ranked 10 out of 10, which indicates strong profitability.

Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. 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 66.67% of 18 companies in the Healthcare Plans industry. The 3-year average EBITDA growth rate is 13.1%, which ranks better than 76.47% of 17 companies in the Healthcare Plans industry.

ROIC vs WACC

Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, UnitedHealth Group's return on invested capital is 10.9, and its cost of capital is 8.

Conclusion

Overall, UnitedHealth Group (UNH, Financial) stock is believed to be fairly valued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 76.47% of 17 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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