Morningstar

UnitedHealth’s Momentum Continues in Second Quarter; Shares Moderately Overvalued

Mild changes to our bottom-line forecasts do not materially affect our $402 fair value estimate.

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Securities In This Article
UnitedHealth Group Inc
(UNH)

UnitedHealth’s (UNH) strong results continued in the second quarter, and the firm is tracking slightly above our profit estimates for the full year on a per share basis. However, mild changes to our bottom-line forecasts do not materially affect our $402 fair value estimate, and we continue to view shares as rich, especially relative to its MCO peers that have similar profit growth prospects but trade at lower multiples. Like its peers, UnitedHealth’s economic moat remains narrow, which recognizes the long-term policy risks it faces particularly in medical insurance and pharmacy benefit management that represent about two thirds of its operating profits. Admittedly, the industry seems to be enjoying a particularly benign period of policy risk, which appears to be benefiting UnitedHealth’s shares.

UnitedHealth delivered strong top- and bottom-line results in the quarter with its healthcare services arm leading the charge, as value-based arrangements with its physician groups and many service lines remain in expansion mode. Continued success in healthcare services could help insulate UnitedHealth from long-term policy risk eventually, but investors should recognize how small these operations are today (only about 19% of operating profits in 2021) relative to its other more policy-sensitive businesses. In total during the quarter, revenue grew 13% to $80 billion. With that top-line strength combined with strong medical loss ratio trends (down to 81.5% this quarter from 82.8% last year) and other cost controls, UnitedHealth’s adjusted EPS grew 19% to $5.57 year over year. Considering those results and its low-single-digit growth in the first quarter, management increased its 2022 outlook slightly to between $21.40 and $21.90 per share, or 13% to 15% growth. While our adjusted EPS estimate for this year was already at the low end of that new range, we suspect the company may be able perform slightly better than we were previously anticipating based on recent trends.

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
More from Author

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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