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UnitedHealth at 19.09X P/E: Worth the Price or Time to Take Profits?
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UnitedHealth Group Incorporated (UNH - Free Report) is currently viewed as expensive, with the stock trading at a 19.09X forward 12-month Price/Earnings (P/E), which is at a premium compared with the Zacks Medical – HMOs industry average of 16.67X.
A premium valuation generally reflects the market’s strong confidence in the company's future prospects. UnitedHealth has a Value Score of B now. However, it is important to closely evaluate whether this elevated price is justified based on its growth prospects, fundamentals and prevailing market conditions.
Image Source: Zacks Investment Research
Optum: Key Driver of UNH’s Future
UnitedHealth’s health service business, branded Optum, is becoming increasingly critical to its diversification strategy. In the second quarter of 2024, Optum's revenues grew 11.7% year over year to $62.9 billion, surpassing the Zacks Consensus Estimate of $62.7 billion. Strong performance from Optum Health and Optum Rx contributed significantly to this growth.
Looking forward, Optum Health is expected to benefit from an expanding customer base under value-based care arrangements, while Optum Rx is set to grow through new client additions and an increase in its specialty and community-based pharmacy offerings. Notably, Optum Rx’s profits are expected to rise throughout the year, helping UnitedHealth offset losses from the cyber-attack on its Change Healthcare division.
UnitedHealth is also diversifying its portfolio by expanding into home healthcare and strengthening its analytics business. The goal is to enhance value for existing partners and create new partnership opportunities. By leveraging AI and other advanced technologies, UnitedHealth aims to scale its operations, reduce long-term costs and boost overall efficiency.
Bright Outlook for UNH & Surprise History
Despite the impact of the cyber-attack earlier this year, UNH is providing optimistic guidance for 2024, projecting adjusted net EPS in the range of $27.50 to $28.00.
Reflecting the positive sentiment around UnitedHealth, the Zacks Consensus Estimate for 2024 earnings is currently pegged at $27.69 per share, indicating 10.2% year-over-year growth. The consensus mark for 2025 suggests a further 12.7% jump. It beat earnings estimates in each of the past four quarters, with an average surprise of 3.3%.
UnitedHealth Group Incorporated Price and EPS Surprise
The consensus estimate for 2024 and 2025 revenues suggests 7.3% and 8.1% year-over-year growth, respectively.
UNH’s Solid Financial Position
During uncertain times, UnitedHealth can rely on its strong balance sheet. Compared to the industry’s composite stocks, which have a debt-to-capitalization ratio of 43.62%, UNH maintains a lower ratio of 40.23%. It exited the second quarter with cash and short-term investments of $31.3 billion, which rose from $29.6 billion at 2023-end. A recovery in its Commercial business is expected to further strengthen its financial position and support debt repayment efforts.
Image Source: Zacks Investment Research
In comparison, other health maintenance organizations like Humana Inc. (HUM - Free Report) and The Cigna Group (CI - Free Report) have a debt-to-capitalization ratio of 43.53% and 43.44%, respectively.
UnitedHealth witnessed 17.3% and 10.9% year-over-year increases in operating cash flow in 2022 and 2023, respectively. Despite the impact of the cyber-attack, it managed to generate an operating cash flow of $7.9 billion in the first half of 2024. This ability supports its strategic acquisitions and shareholder value-boosting initiatives. It rewarded $6.7 billion to its shareholders in the form of buybacks and dividends in the first half of 2024. The company increased its annual rate of dividend by 12% in June 2024.
UNH Can Meet Market Demand
Healthcare spending in the United States is on the rise, and with the increasing prevalence of diseases, this trend is expected to persist. UnitedHealth, with its diverse and expanding portfolio, is well-positioned to benefit from this growing demand despite facing lower-than-expected margins from reduced rates for private Medicare plans. The company also expects continued growth in Medicaid as it supports families through the redetermination process. The expanding membership in its government business could provide a significant boost to future growth.
UNH’s Price Performance
Investors are willing to pay the premium for UNH stock, believing it will continue to outperform both its peers and the broader market. The company has seen its shares rally 17.3% in the past six months, outpacing the industry’s 11.4% growth. Its unmatched scale and operational prowess have also helped it outperform the S&P 500 Index’s growth of 7.3%. The stock is trading above its 50-day and 200-day moving averages, signaling strong upward momentum.
UNH’s 6-Month Price Performance
Image Source: Zacks Investment Research
UNH Shares: Buy for Growth or Cash Out?
The positive developments have contributed to UnitedHealth’s premium valuation, reflecting investors' high expectations for its future growth and profitability. With expansion into targeted markets and strategic diversification, the company still has significant growth potential left, which helps justify its higher valuation.
As such, investors may consider sticking around and snap up more shares, benefiting from its efforts to boost shareholder value. UnitedHealth currently has a Zacks Rank #2 (Buy).
Image: Bigstock
UnitedHealth at 19.09X P/E: Worth the Price or Time to Take Profits?
UnitedHealth Group Incorporated (UNH - Free Report) is currently viewed as expensive, with the stock trading at a 19.09X forward 12-month Price/Earnings (P/E), which is at a premium compared with the Zacks Medical – HMOs industry average of 16.67X.
A premium valuation generally reflects the market’s strong confidence in the company's future prospects. UnitedHealth has a Value Score of B now. However, it is important to closely evaluate whether this elevated price is justified based on its growth prospects, fundamentals and prevailing market conditions.
Optum: Key Driver of UNH’s Future
UnitedHealth’s health service business, branded Optum, is becoming increasingly critical to its diversification strategy. In the second quarter of 2024, Optum's revenues grew 11.7% year over year to $62.9 billion, surpassing the Zacks Consensus Estimate of $62.7 billion. Strong performance from Optum Health and Optum Rx contributed significantly to this growth.
Looking forward, Optum Health is expected to benefit from an expanding customer base under value-based care arrangements, while Optum Rx is set to grow through new client additions and an increase in its specialty and community-based pharmacy offerings. Notably, Optum Rx’s profits are expected to rise throughout the year, helping UnitedHealth offset losses from the cyber-attack on its Change Healthcare division.
UnitedHealth is also diversifying its portfolio by expanding into home healthcare and strengthening its analytics business. The goal is to enhance value for existing partners and create new partnership opportunities. By leveraging AI and other advanced technologies, UnitedHealth aims to scale its operations, reduce long-term costs and boost overall efficiency.
Bright Outlook for UNH & Surprise History
Despite the impact of the cyber-attack earlier this year, UNH is providing optimistic guidance for 2024, projecting adjusted net EPS in the range of $27.50 to $28.00.
Reflecting the positive sentiment around UnitedHealth, the Zacks Consensus Estimate for 2024 earnings is currently pegged at $27.69 per share, indicating 10.2% year-over-year growth. The consensus mark for 2025 suggests a further 12.7% jump. It beat earnings estimates in each of the past four quarters, with an average surprise of 3.3%.
UnitedHealth Group Incorporated Price and EPS Surprise
UnitedHealth Group Incorporated price-eps-surprise | UnitedHealth Group Incorporated Quote
The consensus estimate for 2024 and 2025 revenues suggests 7.3% and 8.1% year-over-year growth, respectively.
UNH’s Solid Financial Position
During uncertain times, UnitedHealth can rely on its strong balance sheet. Compared to the industry’s composite stocks, which have a debt-to-capitalization ratio of 43.62%, UNH maintains a lower ratio of 40.23%. It exited the second quarter with cash and short-term investments of $31.3 billion, which rose from $29.6 billion at 2023-end. A recovery in its Commercial business is expected to further strengthen its financial position and support debt repayment efforts.
In comparison, other health maintenance organizations like Humana Inc. (HUM - Free Report) and The Cigna Group (CI - Free Report) have a debt-to-capitalization ratio of 43.53% and 43.44%, respectively.
UnitedHealth witnessed 17.3% and 10.9% year-over-year increases in operating cash flow in 2022 and 2023, respectively. Despite the impact of the cyber-attack, it managed to generate an operating cash flow of $7.9 billion in the first half of 2024. This ability supports its strategic acquisitions and shareholder value-boosting initiatives. It rewarded $6.7 billion to its shareholders in the form of buybacks and dividends in the first half of 2024. The company increased its annual rate of dividend by 12% in June 2024.
UNH Can Meet Market Demand
Healthcare spending in the United States is on the rise, and with the increasing prevalence of diseases, this trend is expected to persist. UnitedHealth, with its diverse and expanding portfolio, is well-positioned to benefit from this growing demand despite facing lower-than-expected margins from reduced rates for private Medicare plans. The company also expects continued growth in Medicaid as it supports families through the redetermination process. The expanding membership in its government business could provide a significant boost to future growth.
UNH’s Price Performance
Investors are willing to pay the premium for UNH stock, believing it will continue to outperform both its peers and the broader market. The company has seen its shares rally 17.3% in the past six months, outpacing the industry’s 11.4% growth. Its unmatched scale and operational prowess have also helped it outperform the S&P 500 Index’s growth of 7.3%. The stock is trading above its 50-day and 200-day moving averages, signaling strong upward momentum.
UNH’s 6-Month Price Performance
UNH Shares: Buy for Growth or Cash Out?
The positive developments have contributed to UnitedHealth’s premium valuation, reflecting investors' high expectations for its future growth and profitability. With expansion into targeted markets and strategic diversification, the company still has significant growth potential left, which helps justify its higher valuation.
As such, investors may consider sticking around and snap up more shares, benefiting from its efforts to boost shareholder value. UnitedHealth currently has a Zacks Rank #2 (Buy).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.