UnitedHealth Delivers Strong End to 2022, Maintains 2023 Guidance

UnitedHealth’s UNH strong results continued in the fourth quarter, and for the full year, the company exceeded our expectations on a free cash flow basis while coming in about as we expected in other key metrics. On this robust cash flow generation, we plan to raise our fair value estimate by the midsingle digits on a percentage basis. After our fair value estimate change, UnitedHealth shares will probably remain slightly overvalued. Our economic moat rating, which remains narrow, recognizes the long-term policy risks the company faces primarily in medical insurance and pharmacy benefit management, although the shares appear to be benefiting from a particularly benign period of policy risk currently.

Overall, UnitedHealth delivered a strong end to the year, with the medical insurance operations leading the way on the bottom line and the Optum franchises continuing to deliver strong growth, and the company was able to roughly meet or exceed our expectations for the full year. The company especially impressed on a free cash flow basis, generating $23 billion in free cash flow in 2022, or about $1 billion more than we had anticipated. It turned in $324 billion of sales in 2022, right in line with expectations, and exceeded its own guidance on the bottom line, with 17% growth in adjusted earnings per share to $22.19, slightly above management’s most recent guidance of $21.85-$22.05.

The company appears set for another strong year in 2023 as management maintained the guidance given at its November analyst day, including $357 billion-$360 billion of sales, adjusted EPS of $24.40-$24.90 (10%-12% growth, or slightly below its 13%-16% long-term target), and operating cash flows of $27 billion-$28 billion. Given the firm’s penchant for exceeding guidance, especially on the bottom line, we intend to maintain our slightly higher assumptions for 2023.