UnitedHealth Group: Consistent Growth and Profitability

UnitedHealth Group (UNH) is a diversified healthcare company offering healthcare coverage and benefits services through UnitedHealthcare and information and technology-enabled health services through Optum.

I am bullish on UNH stock. The company has a strong balance sheet with consistent sales growth, EPS growth, and strong positive free cash flows. It also has a modest, growing dividend.

UnitedHealth Group Business News

On January 27, 2022, UnitedHealth Group announced a $550,000 investment in the Mississippi Public Health Institute (MSPHI). According to the press release, MSPHI is a “non-profit entity established to protect and improve the health and well-being of Mississippians. The investment will fund one of MSPHI’s initiatives aimed at improving maternal health outcomes and reducing the black-white gap in such outcomes.”

The firm is also celebrating Black History Month this month, as Andrew Witty, CEO of UnitedHealth Group, stated, it is “an opportunity for the 340,000 people of UnitedHealth Group to focus on the progress we can make inside this company to become a more diverse, equitable and inclusive organization and truly build a workforce reflective of the communities we serve.”

In other business news, MarinHealth Medical Center and Optum announced a “strategic relationship to advance MarinHealth’s operational objectives and support MarinHealth’s continued commitment to providing high-quality, affordable, convenient and accessible care for North Bay residents.”

Optum launched a new Evidence Engine intending to focus on genomics-based disease detection and treatment.

UnitedHealth Group Q4 2021, Full Year 2021 Financial Results

We are now in the Q4 2021 and full year 2021 financial results earnings season for most companies. This is a period that provides both valuable information to analyze stocks and offers volatility in the stock market upon the release of the earnings news.

UNH stock earnings show an impressive track record of beating EPS estimates time and time again.

In Q4 2021, UnitedHealth Group had a beat on both EPS and revenue. EPS GAAP of $4.26 was a beat by $0.20, and revenue of $73.74 billion was a beat by $774.36 million.

The Q4 2021 and full year 2021 were both strong, reflecting improved financial performance.

“Our strong 2021 performance and confident growth outlook for 2022 and beyond reflect the accelerating innovation and expanding capabilities across Optum and UnitedHealthcare,” said Andrew Witty, CEO of UnitedHealth Group.

In Q4 2021, UnitedHealth Group showed a year-over-year increase of 12% for revenue, an increase of 57% for earnings from operations, and net margins increased from 3.4% to 5.5%.

For the full year 2021, the firm reported revenues of $287.6 billion, an 11.8% year-over-year increase with double-digit growth at both Optum and UnitedHealthcare.

The net margin for the year remained stable at 6.0%, but earnings from operations increased to $24.0 billion or a 7% year-over-year increase and diluted EPS grew to $18.08, an increase of 12.8% compared to diluted EPS of $16.03 for 2020.

United Health Fundamentals

Overall, UnitedHealth has a strong balance sheet with a debt/equity ratio of 0.62 per the most recent quarter. I like the stock as it is in the defensive Health Care Sector and can provide both diversification and a large degree of safety if the U.S. stock market continues to correct lower due to the tighter monetary policy expected in 2022 by the Federal Reserve.

UNH stock has a five-year monthly beta of 0.87, signaling it should outperform the broader stock market in the scenario of a prolonged decline. Of course, the opposite is true in a scenario of a strong rally for broader U.S. stock market indexes.

The dividend has increased in 2021 to a current $1.45 per quarter, and the latest dividend yield of 1.24% is moderate. Some very positive signals include the facts that the operating margin is expanding, there is predictable revenue and earnings growth, and sales growth is consistent. I also like the strong positive operating cash flows and free cash flows.

Valuation

UNH stock is relatively expensive based on its P/E ratio of 26.5x compared to the U.S. healthcare industry average of ~20x and based on its PEG ratio of 2.3x. Looking at a forward valuation though, things change.

The stock has a forward P/E ratio of 23x and a forward price/sales ratio of 1.4x. The healthcare sector has median values of 27.60x and 5.7x for forward P/E and forward price/sales ratios, respectively.

Wall Street’s Take

UnitedHealth has a Strong Buy Consensus based on 18 Buys and three Hold ratings. The average UnitedHealth price target of $527.71 represents 8% upside potential.

Conclusion

UnitedHealth Group shows consistent profitability and growth in diluted EPS. There is consistent sales growth, and the dividend yield can provide additional returns, given that defensive stocks like this are in favor in 2022.

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