The Market Is Betting Big on UNH - What's the Catch?

Shares of UnitedHealth (UNH) jumped 1.7 % during today's morning session, bringing their 52 week performance to -3.0%. The stock seems to be fairly valued in terms of traditional metrics, but in this day in age, we believe that a complete stock analysis should also take into account the company's poor growth indicators and mixed market sentiment.

UnitedHealth Group Incorporated operates as a diversified health care company in the United States. The large-cap Health Care company is based in Minnetonka, United States and has 400,000 full time employees.

UNH's P/E Ratio Is Comparable to its Sector Average

Compared to the Health Care sector's average of 24.45, UnitedHealth has a trailing twelve month price to earnings (P/E) ratio of 22.4 and an expected P/E ratio of 18.0. P/E ratios are calculated by dividing the company's share price by either its trailing 12 month ($22.34) or forward earnings per share ($27.88).

Earnings is another term for the net profits left over after subtracting cost of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since UnitedHealth's P/E ratio is near its sector average of 24.45, we can deduce that the market is fairly valuing the company's earnings.

UnitedHealth Is Fairly Valued in Terms of Expected Growth

Another factor pointing to UnitedHealth's value is its PEG ratio of 1.51. This is the stock's price to earnings ratio divided by its estimated earnings growth rate. If the resulting ratio is near or lower than 1 -- but higher than 0 -- its indicates that the company is faitly valued in terms of expected growth.

UNH Has an Alarming P/B Ratio

The price to book (P/B) ratio of a company is a comparison of the company's market capitalization versus its net asset, or book value. A ratio lower than 1 tells you that the equity market is undervaluing the book value of the company's assets, and ratios higher than 1 tell you that the equity markets are overvaluing the company in terms of its assets.

Of course, a company is worth much more than its assets alone, so the focus on P/B ratio is mainly to enable investors to single out undervalued securities that offer a margin of safety. Since UnitedHealth's P/B ratio of 5.64 is higher than its sector average of 4.16, such a margin of safety does not exist for the stock.

Investors Stand to Gain from UNH's Cash Flows

UnitedHealth has strong cash flows. With a coefficient of variability of 44575979858.0% and an average growth rate of 0.0%, the company is effectively turning its revenue into cash. We calculate UnitedHealth's free cash flows by subtracting capital expenditures (long term investments in the business) from its total cash flows from operations. The table below shows us that capital expenditures are evolving at a 0.0% rate, versus 0.0% for operating expenses:

Date Reported Cash Flow from Operations ($ k) Capital expenditures ($ k) Free Cash Flow ($ k) YoY Growth (%)
2023-02-24 26,206,000 -2,802,000 29,008,000 16.98
2022-02-15 22,343,000 -2,454,000 24,797,000 2.36
2021-03-01 22,174,000 -2,051,000 24,225,000 17.98
2020-02-14 18,463,000 -2,071,000 20,534,000 15.52
2019-02-12 15,713,000 -2,063,000 17,776,000 13.81
2018-02-13 13,596,000 -2,023,000 15,619,000

UnitedHealth's Is a Profitable Business

If you are looking to make UNH a long term investment, it's essential that you understand the viability of its business through a study of its margins. Gross margins tell you how much the company makes in profit when only the costs directly related to producing the goods or delivering the service are taken into account. Operating margins, on the other hand, factor in overhead costs so they tell you how effectively UnitedHealth is run.

UnitedHealth's Gross Margins

Date Reported Revenue ($ k) Cost of Revenue ($ k) Gross Margins (%) YoY Growth (%)
2023-02-24 324,162,000 -244,545,000 25 4.17
2022-02-15 287,597,000 -217,945,000 24 -7.69
2021-03-01 257,141,000 -190,141,000 26 8.33
2020-02-14 242,155,000 -184,557,000 24 0.0
2019-02-12 226,247,000 -172,401,000 24 4.35
2018-02-13 201,159,000 -154,148,000 23

UnitedHealth's Operating Margins

Date Reported Total Revenue ($ k) Operating Expenses ($ k) Operating Margins (%) YoY Growth (%)
2023-02-24 324,162,000 -51,182,000 9 12.5
2022-02-15 287,597,000 -45,682,000 8 -11.11
2021-03-01 257,141,000 -44,595,000 9 12.5
2020-02-14 242,155,000 -37,913,000 8 0.0
2019-02-12 226,247,000 -36,502,000 8 0.0
2018-02-13 201,159,000 -31,802,000 8

UnitedHealth's cost of revenue is growing at a rate of -0.0% in contrast to -16.6% for operating expenses. Sales revenues, on the other hand, have experienced a 0.0% growth rate. As a result, the average gross margins growth is -0.3 and the average operating margins growth rate is 1.5, with coefficients of variability of 4.2% and 6.2% respectively.

UnitedHealth Benefits From Positive Market Signals

The market sentiment regarding UnitedHealth is overwhelmingly positive. The stock has an average rating of buy and target prices ranging from $650.0 to $520.0. UNH is trading -12.25% away from its target price of $570.54. 0.6% of the company's shares are tied to short positions, and 89.0% of the shares are held by institutional investors.

Date Reported Holder Percentage Shares Value
2023-06-30 Vanguard Group Inc 9% 83,897,141 $42,003,942,920
2023-06-30 Blackrock Inc. 8% 74,159,576 $37,128,733,591
2023-06-30 State Street Corporation 5% 46,313,751 $23,187,442,745
2023-06-30 FMR, LLC 5% 44,941,437 $22,500,380,013
2023-06-30 Capital World Investors 3% 29,163,746 $14,601,121,179
2023-06-30 Price (T.Rowe) Associates Inc 3% 27,941,472 $13,989,177,473
2023-06-30 Wellington Management Group, LLP 3% 24,692,708 $12,362,651,277
2023-06-30 JP Morgan Chase & Company 2% 22,408,471 $11,219,025,172
2023-06-30 Geode Capital Management, LLC 2% 17,546,024 $8,784,592,440
2023-06-30 Morgan Stanley 2% 16,162,707 $8,092,020,945
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.