What a brutal six months it’s been for UnitedHealth. The stock has dropped 46.3% and now trades at $303.30, rattling many shareholders. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.
Following the drawdown, is now the time to buy UNH? Find out in our full research report, it’s free.
Why Are We Positive On UnitedHealth?
With over 100 million people served across its various businesses and a workforce of more than 400,000, UnitedHealth Group (NYSE:UNH) operates a health insurance business and Optum, a healthcare services division that provides everything from pharmacy benefits to primary care.
1. Economies of Scale Give It Negotiating Leverage with Suppliers
Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.
With $410.1 billion in revenue over the past 12 months, UnitedHealth is one of the most scaled enterprises in healthcare. This is particularly important because health insurance providers companies are volume-driven businesses due to their low margins.
2. Outstanding Long-Term EPS Growth
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
UnitedHealth’s EPS grew at a spectacular 13.1% compounded annual growth rate over the last five years, higher than its 10.7% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
3. Stellar ROIC Showcases Lucrative Growth Opportunities
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
UnitedHealth’s five-year average ROIC was 21.6%, placing it among the best healthcare companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.
Final Judgment
These are just a few reasons why UnitedHealth ranks highly on our list. With the recent decline, the stock trades at 9.8× forward P/E (or $303.30 per share). Is now a good time to buy? See for yourself in our full research report, it’s free.
Stocks We Like Even More Than UnitedHealth
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
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