Does UnitedHealth Now Offer Long Term Value After a 41% Share Price Slide?

• Wondering if UnitedHealth Group is now quietly turning into a value opportunity after a rough stretch in the market? This article will walk through whether the current price actually makes sense.
• Despite a modest 1.1% gain over the last 7 days and 0.8% over the past month, the stock is still down 33.9% year to date and 41.2% over the last year, with only a 5.8% gain over 5 years.
• Recent headlines have centered on regulatory scrutiny of managed care, shifting dynamics in Medicare Advantage, and rising concerns about healthcare cost inflation, all of which have weighed on sentiment toward insurers. At the same time, investors are debating whether UnitedHealth's scale, data capabilities, and diversified operations can help it navigate these pressures better than peers.
• On our checks, UnitedHealth Group scores a 5/6 valuation score, suggesting it screens as undervalued in most of the ways we typically test. Next, we will break down what that means using different valuation approaches, before finishing with an even more powerful way to think about what the market is really pricing in.

Find out why UnitedHealth Group's -41.2% 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 business is worth by projecting the cash it can generate in the future and then discounting those cash flows back to today using an appropriate rate.

For UnitedHealth Group, the latest twelve month Free Cash Flow is about $17.1 billion. Analysts provide explicit forecasts for the next few years, and beyond that Simply Wall St extrapolates the trend, leading to projected Free Cash Flow of roughly $39.7 billion by 2035. These long term projections reflect a decelerating, but still positive, growth profile as the company scales.

When all these projected cash flows are discounted back to today using a 2 Stage Free Cash Flow to Equity model, the intrinsic value comes out at about $847.44 per share. Compared with the current share price, this implies the stock trades at roughly a 60.6% discount. This suggests the market is heavily penalizing the business relative to its long term cash generation potential.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests UnitedHealth Group is undervalued by 60.6%. Track this in your watchlist or portfolio, or discover 912 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for UnitedHealth Group.

Approach 2: UnitedHealth Group Price vs Earnings

For profitable companies like UnitedHealth Group, the price to earnings, or PE, ratio is a useful yardstick because it links what investors pay directly to the profits the business is generating today. In general, stronger growth and lower perceived risk justify a higher PE ratio, while slower growth or higher uncertainty should pull that multiple down.

UnitedHealth currently trades on a PE of about 17.2x, which sits below both the Healthcare industry average of roughly 22.4x and the peer average of around 22.1x. That already hints at a discount, but simple comparisons can be misleading because they ignore company specific factors. This is where Simply Wall St's Fair Ratio comes in. It is a proprietary estimate of what UnitedHealth's PE should be, given its earnings growth outlook, margins, risk profile, industry positioning and market cap, and therefore gives a more tailored benchmark than broad peer or sector averages.

On these inputs, UnitedHealth's Fair Ratio is calculated at about 39.5x, well above the current 17.2x. That gap suggests the market is pricing in significantly more risk or weaker growth than the model implies. This indicates that there could be material upside if those concerns later turn out to be overly pessimistic.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1442 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. Let us introduce you to Narratives, a simple tool on Simply Wall St's Community page where you connect your view of a company’s story with concrete forecasts for its revenue, earnings and margins. You can then compare the Fair Value that results from that story with today’s share price to decide whether to buy, hold or sell. The Narrative itself keeps evolving as fresh news, earnings and regulatory developments come in. For example, a bullish investor in UnitedHealth Group might build a Narrative around star rating improvements, margin recovery and a Fair Value nearer the top analyst target of about $626. A more cautious investor could anchor on reimbursement risk, margin pressure and a Fair Value closer to $198, with both perspectives clearly quantified and continuously updated rather than being buried in static reports.

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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