With a market capitalization of $447.05 billion, UnitedHealth Group Incorporated (UNH) dominates as the biggest healthcare company in the United States, surpassing even the nation’s largest banks. Due to its significant size, UNH is regarded as a bellwether for the broader health insurance sector.

Last week, the healthcare conglomerate reported its second-quarter earnings, exceeding Wall Street’s forecasts. Adjusted earnings per share came in at $6.14 compared to the anticipated $5.99. Additionally, revenue amounted to $92.9 billion, surpassing the expected $91.01 billion in its fiscal second quarter.

The results eased investor concerns after UNH flagged a surge in non-urgent surgeries and outpatient demand, spooking the market. Insurance companies have profited from delayed non-urgent procedures due to hospital staffing shortages and the COVID patient influx during the pandemic.

In addition, UNH has revised its full-year adjusted earnings outlook, increasing the lower range from $24.50 – $24.70 per share to $24.70 – $25.00 per share. Furthermore, the company anticipates its medical cost ratio to “be a little bit lower” in the third quarter compared with the second quarter.

Shares of UNH have gained 4% over the past five days to close its last trading session at $480.17.

Here is what could shape UNH’s performance in the near term:

Recent Developments

On February 22, UNH finalized its $5.4 billion acquisition of LHC Group, a renowned national provider of in-home healthcare services. The merger emphasizes quality home care and seamless coordination to reduce complexity. The company could greatly benefit by enhancing the healthcare experience for its patients.

On the same day, UNH extended its partnership with Somatus, the leading value-based kidney care provider. The expansion focuses on offering high-touch kidney care services to individuals with chronic or end-stage kidney diseases in multiple states. The alliance should boost UNH’s revenue and expand its offerings and geographic reach.

Solid Financials

During the fiscal 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.

Moreover, adjusted net earnings attributable to UNH common shareholders grew 9.1% year-over-year to $5.77 billion, whereas adjusted EPS increased 10.2% from the prior year’s quarter to $6.14.

As of June 30, 2023, the company’s cash and short-term investments stood at $46.28 billion, compared to $27.91 billion as of December 31, 2022. Its total assets amounted to $280.16 billion, compared to $245.71 billion as of December 31, 2022.

Attractive Dividend

The company has raised its dividends for 13 consecutive years. It pays a $7.52 dividend annually, which translates to a 1.57% dividend yield on the current price level. UNH’s dividend payments have grown at a CAGR of 16.7% over the past five years, and its four-year average dividend yield is 1.35%.

Solid Historical Growth

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

Favorable Analyst Estimates

Analysts expect UNH’s revenue to increase 12.7% year-over-year to $365.41 billion for the fiscal year ending December 2023. The company’s EPS for the ongoing year is expected to rise 12.1% from the previous year to $24.87. Moreover, the company surpassed its consensus revenue and EPS estimates in all four trailing quarters, which is impressive.

Furthermore, UNH’s revenue and EPS for the next fiscal year (ending December 2024) are expected to grow 6.9% and 12.7% year-over-year to $390.77 billion and $28.02, respectively.

Discounted Valuation

In terms of forward non-GAAP P/E, UNH is trading at 19.33x, 3.4% lower than the industry average of 20x. Its forward EV/EBITDA multiple of 13.34 is 1.5% lower than the industry average of 13.54x. In addition, the stock’s forward Price/Sales of 1.23x is 70.8% lower than the industry average of 4.20x.

High Profitability

UNH’s trailing-12-month EBITDA margin of 9.55% is 165.4% higher than the 3.60% industry average. Its trailing-12-month asset turnover ratio of 1.37x is 286.2% higher than the industry average of 0.35x. In addition, the stock’s trailing-12-month net income margin of 6.06% compares to the negative industry average of 6.88%.

POWR Ratings Show Promise

UNH’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to 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 Stability, in sync with tits 24-month beta of 0.49. The stock also has a B for Quality, consistent with its higher-than-industry profitability.

UNH is ranked #5 in the 12-stock Medical – Health Insurance industry. Click here to access UNH’s Growth, Value, Momentum, and Sentiment ratings.

View all the top stocks in the Medical – Health Insurance industry here.

Bottom Line

In its fiscal 2023 second quarter, healthcare giant UNH surpassed Wall Street’s projections. Moreover, the company initiated several acquisitions and partnerships early in the year, fortifying its position for further growth and expansion.

Given UNH’s strong financials, profitability, positive analyst sentiment, and solid growth record, UNH could make an ideal addition to your portfolio now.

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

While UNH has an overall POWR Rating of B, equating to Buy, one could also check out other stocks within the Medical – Health Insurance industry that are overall A (Strong Buy) rated: Elevance Health (ELV), Humana Inc. (HUM) and Centene Corp. (CNC).

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UNH shares were trading at $479.89 per share on Monday afternoon, down $0.28 (-0.06%). Year-to-date, UNH has declined -8.79%, versus a 18.63% rise in the benchmark S&P 500 index during the same period.

About the Author: Aanchal Sugandh

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. More...

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