UnitedHealth Group Inc (UNH, Financial) experienced a daily gain of 2.39% and a 3-month gain of 5.36% as of September 20, 2023. With an Earnings Per Share (EPS) (EPS) of 22.35, the question arises: Is the stock modestly undervalued? This article delves into the valuation analysis of UnitedHealth Group (UNH), providing valuable insights into its intrinsic value. Keep reading to understand the financial health and prospects of this healthcare giant.
Company Introduction
UnitedHealth Group is one of the largest private health insurers, 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.
Understanding GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. This valuation model considers historical multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future business performance estimates. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at.
UnitedHealth Group's stock appears to be modestly undervalued based on GuruFocus' valuation method. The GF Value estimates the stock's fair value at $565.08, which, compared to the current price of $492.13 per share, indicates the stock is undervalued. As UnitedHealth Group is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
Financial Strength
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid this, an investor must review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are great ways to understand its financial strength. UnitedHealth Group has a cash-to-debt ratio of 0.71, which ranks worse than 68.42% of companies in the Healthcare Plans industry. The overall financial strength of UnitedHealth Group is 7 out of 10, indicating fair financial health.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. 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 an EPS of $22.35. Its operating margin is 8.75%, which ranks better than 73.33% of companies in the Healthcare Plans industry. Overall, the profitability of UnitedHealth Group is ranked 10 out of 10, indicating strong profitability.
Growth is probably the most important factor in the valuation of a company. 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 is10.8%, which ranks worse than 61.11% of companies in the Healthcare Plans industry. The 3-year average EBITDA growth rate is 13.1%, which ranks better than 76.47% of 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 (ROIC) and the weighted average cost of capital (WACC). For the past 12 months, UnitedHealth Group's ROIC is 10.9, and its WACC is 7.77. The historical ROIC vs WACC comparison of UnitedHealth Group is shown below:
Conclusion
In summary, the stock of UnitedHealth Group shows every sign 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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