Morningstar

UnitedHealth’s Momentum Continues in Q3; Raising Fair Value Estimate on Recent Cash Flows

The company delivered strong results with medical insurance operations growing faster on the bottom line than anticipated.

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Securities In This Article
UnitedHealth Group Inc
(UNH)

UnitedHealth’s (UNH) strong results continued in the third quarter, and we are increasing our full-year expectations mildly, given recent trends. Considering that mild change and cash flows generated since our last valuation change in April, we are raising our fair value estimate by a mid-single-digit percentage. However, we continue to view UnitedHealth’s shares as moderately overvalued relative to key peers, given the latter’s similar profit growth prospects but lower trading multiples. Like its peers, UnitedHealth’s economic moat rating remains narrow, which recognizes the long-term policy risks it 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.

UnitedHealth delivered strong single and bottom-line results in the quarter with the medical insurance operations growing faster on the bottom line than anticipated, including mild medical utilization trends. In total, UnitedHealth’s revenue grew 12% to $81 billion. With that top-line strength combined with strong medical loss ratio trends (down to 81.6% this quarter from 83.0% in the year-ago period) and other cost controls, UnitedHealth’s adjusted EPS grew 28% year over year to $5.57, which was better than expected. Considering those results, management increased its 2022 EPS outlook to about $21.85-$22.05, or 15%-16% growth, at the high end of its long-term goal of 13%-16% growth. While our adjusted EPS estimate for this year was already near the high end of that new range, we suspect the company may be able perform slightly better than we previously anticipated (and what management is currently guiding to) based on recent trends. Also, management gave an initial indication of 2023 EPS expectations, suggesting that current consensus ($24.83 on FactSet) probably would be at the top end of management’s 2023 guidance range at its investor day in late November.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Julie Utterback, CFA

Senior Equity Analyst
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Julie Utterback, CFA, is a senior equity analyst, AM Healthcare, for Morningstar*. She focuses on medical technology and service companies. She covers managed care organizations including UnitedHealth, service providers like HCA, medical suppliers such as Baxter, and life sciences companies like Danaher. She is also the chairperson of the equity research team’s capital allocation methodology.

Before joining Morningstar in 2005, Utterback was an equity analyst at State Farm Insurance for several years. Utterback joined Morningstar in 2005 as an equity analyst in the healthcare industry, and initially she primarily covered medical technology companies, including orthopedic device, medical equipment, and cardiac device firms. In 2010, she joined Morningstar's credit research team, initiating coverage of the entire healthcare industry and generally helping the organization expand and maintain its credit coverage across many industries. She held that senior credit analyst role until April 2019, when she returned to the equity team to cover medical technology and service companies.

Utterback holds a bachelor's degree in finance from the University of Illinois Urbana-Champaign’s Gies College of Business. She also holds the Chartered Financial Analyst® designation.

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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