Boasting a market capitalization of $485.61 billion, UnitedHealth Group Incorporated (UNH) is a multifaceted healthcare enterprise. The company operates through four segments: UnitedHealthcare; OptumHealth; OptumInsight; and OptumRx.

UNH is scheduled to release its third quarter 2023 financial results on October 13. Wall Street expects the company to report adjusted earnings of $6.36 per share for the quarter, indicating a 9.8% year-over-year improvement. Its revenue for the quarter is expected to increase 13% year-over-year to $91.41 billion.

In addition to an expected year-over-year improvement in earnings and revenues, I have evaluated what makes the investment case strong for UNH in this article.

Before delving into UNH’s financials, let's take a look at the recent developments that position the company well for growth.

On October 5, UNH disclosed that over 4.4 million employees had chosen to include UNH's Surest health plan in their 2024 options. Remarkably, 1 in 6 of UNH's national account clients embraced Surest, signifying its rapid ascension as the swiftest growing plan within UNH's commercial portfolio.

The surge in adoption could benefit UNH by bolstering its market presence and enhancing revenue streams. Also, the widespread acceptance of Surest reflects its appeal and the trust employers place in UNH's offerings. Additionally, this growth underscores UNH's competitive advantage in the industry.

On October 4, UNH’s Optum and ProHealth Care announced a strategic partnership to enhance patient care and innovative technology solutions. Optum will take charge of ProHealth Care's revenue cycle management, informatics, analytics, inpatient care management, and information technology.

By assuming responsibility for ProHealth Care's vital operations, Optum would be able to demonstrate its capabilities, reinforce its reputation, and potentially attract more healthcare organizations seeking similar services. This would bolster UNH's overall position and reputation in the market.

In addition, on October 1, the company rolled out its 2024 Medicare Advantage plans, prioritizing member ease, fortified benefits, an expansive network, and cost-efficiency via specialty and prescription drug coverage. UNH’s expansion aims to cover 96% of all Medicare consumers, catering to diverse individual needs nationwide.

This could strengthen UNH's competitive edge in the Medicare Advantage arena, broadening its reach and reaffirming its dedication to comprehensive healthcare solutions. It also positions UNH to serve a substantial share of Medicare beneficiaries, amplifying its market influence and financial prospects in the healthcare sector.

Furthermore, bolstered by a strong first-half performance, the company has adjusted its full-year net earnings projection to $23.45 to $23.75 per share and adjusted net earnings to $24.70 to $25.00 per share. These revisions reflect the company's confidence in its financial resilience.

Shares of UNH have gained 8.6% over the past month and 12.7% over the past three months to close the last trading session at $524.24.

Here are the financial aspects of UNH that could influence its performance in the near term:

Recent Financials Look Compelling

For the second quarter that ended June 30, 2023, UNH’s total revenues increased 15.6% year-over-year to $92.90 billion. Its earnings from operations rose 13% from the year-ago value to $8.06 billion.

In addition, adjusted net earnings attributable to UNH common shareholders grew 9.1% from the prior year’s quarter to $5.77 billion, while adjusted EPS came in at $6.14, up 10.2% year-over-year. As of June 30, 2023, UNH’s cash and short-term investments stood at $46.28 billion, compared to $27.91 billion as of December 31, 2022.

Impressive Historical Growth

Over the past three years, UNH’s revenue and EBITDA increased at a CAGR of 12% and 7.9%, respectively. Its net income and EPS grew at respective CAGRs of 7.3% and 7.9%. In addition, the company’s total assets rose at a CAGR of 13.3% during the same period.

Upbeat Analyst Estimates

The consensus revenue estimate of $367.77 billion for the fiscal year ending December 2023 reflects a 13.5% year-over-year improvement. Likewise, the consensus EPS estimate of $24.87 for the current year exhibits a 12.1% rise from the previous year. Moreover, the company topped the consensus revenue and EPS estimates in all four trailing quarters, which is impressive.

In addition, analysts expect the company’s revenue and EPS for the next fiscal year (ending December 2024) to grow 6.9% and 12.4% from the previous year to $393.05 billion and $27.95, respectively.

Discounted Valuation

In terms of trailing-12-month EV/Sales, UNH is trading at 1.50x, 56.7% lower than the industry average of 3.45x. Its trailing-12-month Price/Sales of 1.41x is 59.4% lower than the 3.47x industry average. Moreover, UNH’s trailing-12-month Price/Cash Flow of 11.79x is 31.2% lower than the 17.14x industry average.

Higher-Than-Industry Profitability

UNH’s trailing-12-month EBIT margin of 8.75% is significantly higher than the industry average of 0.53%. Also, the stock’s trailing-12-month levered FCF margin of 10.85% compares with the 0.45% industry average. Furthermore, its trailing-12-month asset turnover ratio of 1.37x is 260.3% higher than the industry average of 0.38x.

POWR Ratings Show Promise

UNH’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. UNH has a B grade for Quality, justified by its high profitability. In addition, the stock has a B grade for Stability, consistent with its 24-month beta of 0.47.

UNH is ranked #4 in the 11-stock A-rated Medical - Health Insurance industry. Click here to access UNH’s Growth, Value, Momentum, and Sentiment ratings.

Bottom Line

UNH is on the brink of significant expansion, with its Surest health plan gaining widespread adoption, strategic alliances formed with ProHealth Care, and the introduction of comprehensive Medicare Advantage plans. This highlights the company's growing market presence.

Moreover, UNH's strong first-half performance and revised earnings projections reveal its financial resilience. Ahead of the third-quarter earnings release, which is expected to show improvement, the stock could be a solid pick given its strong financials, robust profitability, and high stability.

How Does UnitedHealth Group Incorporated (UNH) Stack Up Against Its Peers?

While UNH has an overall grade of A, equating to a Strong Buy rating, you may also check out these other A-rated stocks within the Medical - Health Insurance industry: Elevance Health, Inc. (ELV), Centene Corporation (CNC), and Molina Healthcare, Inc. (MOH). For exploring more A-rated Medical - Health Insurance stocks, click here.

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UNH shares were trading at $523.80 per share on Wednesday morning, down $0.44 (-0.08%). Year-to-date, UNH has declined -0.06%, versus a 15.00% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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