UnitedHealth Group Inc (UNH, Financial), one of the largest private health insurers globally, provides medical benefits to approximately 50 million members, including 5 million outside the U.S. UnitedHealth Group's significant presence in employer-sponsored, self-directed, and government-backed insurance plans has allowed it to achieve enormous scale in managed care. Moreover, its continuous investment in its Optum franchises has created a healthcare services giant that offers a broad range of services, from medical and pharmaceutical benefits to outpatient care and analytics. As of July 14, 2023, UnitedHealth Group's stock price stands at $477.82, indicating a 6.72% change in the day's trading.
GF Value of UnitedHealth Group (UNH, Financial)
The GF Value of UnitedHealth Group (UNH), calculated based on historical trading multiples, an adjustment factor from GuruFocus, and estimates of future business performance, stands at $548.59. This unique indicator suggests that the stock is modestly undervalued. If the share price is significantly above the GF Value Line, the stock may be overvalued and offer poor future returns. Conversely, if the share price is significantly below the GF Value calculation, the stock may be undervalued, indicating higher future returns.
Given that UnitedHealth Group's stock is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength of UnitedHealth Group (UNH, Financial)
Investing in companies with robust financial strength can potentially mitigate the risk of permanent capital loss. A company’s financial strength can be initially assessed by looking at its cash-to-debt ratio and interest coverage. With a cash-to-debt ratio of 0.66, UnitedHealth Group ranks lower than 73.68% of companies in the Healthcare Plans industry. Based on this, GuruFocus ranks UnitedHealth Group’s financial strength as 7 out of 10, indicating a reasonably balanced sheet.
Profitability of UnitedHealth Group (UNH, Financial)
Investing in profitable companies, especially those demonstrating consistent profitability over the long term, generally carries less risk. UnitedHealth Group, with its high profit margins, offers better performance potential than companies with low profit margins. Having been profitable for 10 years over the past decade, the company had revenues of $333.5 billion and an EPS of $21.87 in the past 12 months. Its operating margin of 8.13% is better than 66.67% of companies in the Healthcare Plans industry, earning UnitedHealth Group a strong profitability rank from GuruFocus.
Growth of UnitedHealth Group (UNH, Financial)
Growth is a crucial factor in a company's valuation. The 3-year average annual revenue growth rate of UnitedHealth Group is 10.9%, which ranks lower than 61.11% of companies in the Healthcare Plans industry. However, its 3-year average EBITDA growth rate is 13.1%, ranking better than 76.47% of companies in the same industry.
ROIC vs WACC of UnitedHealth Group (UNH, Financial)
Comparing a company’s return on invested capital (ROIC) to its weighted average cost of capital (WACC) can provide insights into its profitability. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. In the past 12 months, UnitedHealth Group’s ROIC was 10.19, while its WACC was 6.37.
Conclusion
In summary, the stock of UnitedHealth Group Inc (UNH, Financial) 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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