UnitedHealth Group (UNH) recently reported its Q1 results, surpassing expectations with revenues of $99.8 billion and adjusted earnings of $6.91 per share, above estimates of $99.7 billion and $6.75. Despite showing gains of 35% from early January 2021 to around $480 now, UNH stock has had inconsistent performance, with returns of 43% in 2021, 6% in 2022, and -1% in 2023. Comparatively, the S&P 500 had returns of 27% in 2021, -19% in 2022, and 24% in 2023, outperforming UNH in 2023. However, the Trefis High Quality Portfolio has outperformed the S&P 500 each year over the same period, highlighting the benefits of a diversified portfolio.
Looking ahead, with uncertainties in the macroeconomic environment such as high oil prices and elevated interest rates, questions arise about whether UNH will face similar underperformance as in 2023. However, from a valuation perspective, there is potential for growth as the company’s estimated valuation is $586 per share, representing over 20% upside from its current levels. This forecast is based on a 21x P/E multiple for UNH and expected earnings of $27.70 per share for 2024. The company expects earnings to be in the range of $27.50 to $28.00 for 2024, aligning with the stock’s average P/E ratio over the past three years.
UnitedHealth Group’s Q1 revenue of $99.8 billion reflects a 9% year-over-year growth, driven by a 7% increase in UnitedHealthcare and a 13% rise in Optum segment sales. The operating margin declined by 85 bps to 8%, with both UnitedHealthcare and Optum segment margins contracting due to various factors. The company recorded a $7 billion charge related to the sale of its Brazil business and a $0.74 per share impact from a cyberattack. Despite these challenges, a 10% year-over-year rise in earnings to $6.91 per share on an adjusted basis was achieved.
A key factor to watch is UnitedHealth’s Medical Care Ratio, which stood at 84.3% in Q1, including a slight impact from the cyberattack. The company’s ability to navigate these challenges and maintain its earnings guidance unchanged is seen as a positive for the stock. While UNH stock has risen 6% in the last five days, there is belief that there is more room for growth. Overall, UnitedHealth has demonstrated resilience in Q1, and its potential for future growth and value creation remains strong. Investors are advised to monitor the company’s performance and market conditions for further insights into its trajectory.
