Is UnitedHealth Group Now a Potential Opportunity After a 35% Share Price Slide?
- If you are wondering whether UnitedHealth Group is now quietly trading at a discount after a rough stretch, or if that low price is a value trap in disguise, this breakdown is for you.
- After a choppy year, the stock is down about 35.1% year to date and 32.9% over the last 12 months, even though it has managed a 5.9% gain over the past month despite a 4.2% dip in the last week.
- Much of this volatility has been driven by headlines around rising medical cost trends, regulatory scrutiny in key government programs, and shifting expectations for managed care stocks generally. At the same time, investors are weighing UnitedHealth Group's scale in insurance and healthcare services, including Optum, against those growing policy and cost concerns.
- Right now, UnitedHealth Group scores a solid 5/6 on our valuation checks, suggesting it may be undervalued on most of the metrics we track. Next, we will walk through different valuation approaches to see how they line up, and then finish with a more structured way to think about what the stock is really worth.
Find out why UnitedHealth Group's -32.9% return over the last year is lagging behind its peers.
Approach 1: UnitedHealth Group Discounted Cash Flow (DCF) Analysis
A Discounted Cash Flow model estimates what a company is worth today by projecting the cash it can generate in the future and then discounting those cash flows back to their value in $ today.
For UnitedHealth Group, the latest twelve month Free Cash Flow is about $17.1 billion, and analysts expect this to climb steadily as the business grows. Projections used in the model see Free Cash Flow reaching roughly $27.1 billion by 2029, with further growth extrapolated out to 2035 based on Simply Wall St assumptions once analyst estimates run out.
Using a 2 Stage Free Cash Flow to Equity model on these projections results in an estimated intrinsic value of about $837 per share. Compared to the current share price, this implies the stock is roughly 60.9% undervalued. This suggests the market is heavily discounting UnitedHealth Group relative to its cash generation potential.
Result: UNDERVALUED
Our Discounted Cash Flow (DCF) analysis suggests UnitedHealth Group is undervalued by 60.9%. Track this in your watchlist or portfolio, or discover 913 more undervalued stocks based on cash flows.
Approach 2: UnitedHealth Group Price vs Earnings
For a mature, consistently profitable business like UnitedHealth Group, the price to earnings ratio is a useful way to gauge whether investors are paying a reasonable price for each dollar of current earnings. A higher or lower PE ratio often reflects what the market expects for future growth, and how much risk investors see in those earnings continuing.
UnitedHealth Group currently trades on a PE of about 16.9x. That sits well below the broader Healthcare industry average of roughly 23.7x and also below the peer group average of about 22.5x, which signals that the market is applying a noticeable discount to the stock compared to similar companies.
Simply Wall St also calculates a Fair Ratio, which is the PE multiple that might be expected based on factors such as UnitedHealth Group's earnings growth outlook, profit margins, size, industry and risk profile. This Fair Ratio comes out at roughly 39.2x, meaning the stock trades at less than half of what that model suggests would be reasonable. Because the Fair Ratio adjusts for the company's specific growth and risk rather than just comparing it with broad averages, it provides a more tailored benchmark and indicates that the stock may have meaningful upside potential.
Result: UNDERVALUED
PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1463 companies where insiders are betting big on explosive growth.
Upgrade Your Decision Making: Choose your UnitedHealth Group Narrative
Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, which are simple, story driven views of a company that link your perspective on its future revenue, earnings and margins to a clear financial forecast and a fair value estimate you can compare against today’s share price. Narratives on Simply Wall St, available to millions of investors on the Community page, let you move beyond raw numbers by capturing why you think something will happen, turning your view of UnitedHealth Group’s strategy, regulation risks and margin potential into a living model that updates as new news or earnings arrive. By comparing each Narrative’s Fair Value with the current price, you can quickly see whether your story points to buying, holding or selling, and how that differs from other investors who may, for example, assume a fair value closer to the bullish 626 dollars target or the more cautious 198 dollars target.
Do you think there's more to the story for UnitedHealth Group? Head over to our Community to see what others are saying!
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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