UnitedHealth Group Surpasses Earnings Expectations, But Stock Slips on Weak Outlook

UnitedHealth Group (NYSE: UNH) has released its Q3 results, boasting revenues and earnings that beat our predictions. The company achieved revenue of $100.8 billion and adjusted earnings of $7.15 per share, surpassing our expectations of $99 billion and $6.95, respectively. Despite this positive performance, UNH stock fell by as much as 10% on Tuesday, October 15, due to an outlook that disappointed investors. This report examines UnitedHealth Group’s stock movement, highlights from its recent results, and provides insights into its valuation.

Q3 Performance Highlights

UnitedHealth Group reported revenue of $100.8 billion for Q3, marking a 9% year-over-year increase. This growth was driven by sales from both the UnitedHealth and Optum segments, which rose by 7% and 13% respectively. A key focus for investors was the medical care ratio, which increased to 85.2%, compared to 82.3% in the same quarter last year. This figure came in higher than our estimates of a 200 basis points increase. The operating margin decreased by 60 basis points to 8.6%. Adjusted EPS was reported at $7.15, up from $6.56 a year ago.

While the company delivered a solid performance in Q3, investor sentiment soured with the outlook for 2024 and 2025. UnitedHealth narrowed its 2024 earnings forecast from a range of $27.50 to $28.00 per share to a more conservative $27.50 to $27.75 per share. Additionally, the top end of its 2025 earnings projection is $30, falling short of both our estimates and consensus expectations exceeding $31. Rising medical costs seem likely to continue affecting UnitedHealth’s performance in upcoming quarters.

Implications for UNH Stock

The decline in UNH stock indicates investor dissatisfaction with the company’s outlook. We have since revised our estimates, projecting UnitedHealth Group’s Valuation at $552 per share, closely aligned with its current trading level around $560. This figure reflects a 20x price-to-earnings (P/E) ratio based on expected earnings of $27.65 per share in 2024. This ratio is slightly below the three-year average for UNH, suggesting that the valuation dip is reasonable given the anticipated rise in costs impacting earnings next year.

UNH stock has appreciated by 12% so far this year, underperforming compared to the S&P 500 index, which has gained 22%. Despite being one of the few stocks to have increased in value over the last three years, UnitedHealth’s performance has not consistently outshined the broader market. In contrast, the Trefis High Quality (HQ) Portfolio has outperformed the S&P 500 every year during this period, demonstrating that its 30 selected stocks have provided better returns with lower volatility compared to the index.

Although UNH stock appears fully valued, analyzing UnitedHealth Group Peers on key metrics will provide additional insights. Further comparisons for companies across various industries can be found in Peer Comparisons.

[1] Returns as of 10/16/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.