UnitedHealth Group recently released its Q2 results, reporting revenue of $98.6 billion and adjusted earnings of $6.80 per share, slightly below and above expectations, respectively. Despite this, the stock has shown gains of 65% from early 2021 to around $575 currently, outperforming the S&P 500 over the past three years. However, UNH underperformed the S&P in 2023, with returns of 6% compared to the S&P’s 24%.
Consistently beating the S&P 500 has been difficult for individual stocks in recent years, including heavyweights in the Health Care sector and megacap stars like Google, Tesla, and Microsoft. In contrast, the Trefis High Quality Portfolio, with a group of 30 stocks, has outperformed the S&P 500 each year over the same period. The HQ Portfolio stocks have provided better returns with less risk compared to the benchmark index.
Given the uncertain macroeconomic environment with high oil prices and elevated interest rates, the question remains whether UNH will underperform the S&P over the next 12 months or see a strong jump. From a valuation perspective, UNH stock appears to be appropriately priced now, with an estimated valuation of $580 per share based on a 21x P/E multiple and expected earnings of $27.55 per share in 2024. The company expects its earnings to be in the range of $27.50 to $28.00 in 2024.
UnitedHealth Group saw a 6% year-over-year revenue growth in Q2, driven by a 5% rise in UnitedHealthcare and a 12% increase in Optum segment sales. The company’s adjusted operating margin remained stable year-over-year at 8.7%, despite a $0.92 per share impact from a cyber attack in Q2. The company expects the impact for the full year to be in the range of $1.90 and $2.05 per share.
One key factor to watch is UnitedHealth’s Medical Care Ratio, which rose by 190 basis points year-over-year to 85.1% in Q2. Overall, UnitedHealth performed well in Q2, with the company keeping its earnings guidance unchanged, which is a positive for the stock. However, with UNH stock rising 15% in the last five days, it is believed that the stock is fully valued.
In conclusion, UnitedHealth Group’s Q2 results were slightly below and above expectations for revenue and earnings, respectively. The stock has shown significant gains over the past three years, outperforming the S&P 500 overall. However, UNH underperformed the S&P in 2023. Despite the uncertain macroeconomic environment, UNH stock is considered to be appropriately priced at its current levels. The company’s strong revenue growth and stable operating margin in Q2 indicate a positive outlook for the future.
