Is UnitedHealth Group Now a Bargain After This Week’s 8.8% Drop?

• Wondering if UnitedHealth Group's stock is a bargain or perhaps a value trap? You're not alone. We are diving straight into the numbers to find out what the market might be missing.
• Despite its blue-chip reputation, the stock has seen sharp moves lately. It dropped 8.8% this week and has declined 38.7% year-to-date, with a substantial 47.4% decrease over the past 12 months.
• Investors have been on edge recently after several major healthcare providers reported shifting market conditions, adding uncertainty about the sector's outlook. UnitedHealth Group has been featured in headlines discussing regulatory challenges and increased competition, both of which have contributed to the dramatic price swings.
• One detail stands out: UnitedHealth Group scores a 6 out of 6 on our undervaluation checks, signaling it could be one of the market’s truly overlooked opportunities. We will walk through how different valuation methods stack up, and stay tuned for an even smarter way to look at value at the end of the article.

Find out why UnitedHealth Group's -47.4% return over the last year is lagging behind its peers.

Approach 1: UnitedHealth Group Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model is a valuation method that estimates the present value of a company by forecasting its future cash flows and discounting them back to today's dollars. This approach gives investors a way to gauge what a business might truly be worth based on its expected ability to generate cash.

For UnitedHealth Group, the latest available Free Cash Flow is $17.1 Billion. Analysts project continued growth, expecting annual cash flows to reach $27.1 Billion by 2029. For years beyond available analyst estimates, cash flow projections are extrapolated, providing a 10-year outlook.

Applying the 2 Stage Free Cash Flow to Equity model, Simply Wall St calculates that UnitedHealth Group's fair intrinsic value is $847.44 per share. This value is 63.5% higher than the current share price, suggesting a substantial undervaluation according to DCF analysis.

DCF models prioritize long-term business fundamentals and smooth out short-term market noise. In this case, UnitedHealth Group's robust cash generation and consistent future growth assumptions support a view that the market may be missing meaningful value.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests UnitedHealth Group is undervalued by 63.5%. Track this in your watchlist or portfolio, or discover 908 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

The Price-to-Earnings (PE) ratio is commonly used to value profitable companies like UnitedHealth Group, because it quickly shows how much investors are willing to pay for each dollar of earnings. For businesses that consistently generate profits, the PE ratio helps investors weigh future growth prospects against current performance.

A company's "normal" or "fair" PE ratio is influenced by expectations for earnings growth and how risky the business is compared to its peers. Rapidly growing firms or those in more stable industries typically warrant higher PE ratios. More uncertainty or slower growth can lower this benchmark.

Right now, UnitedHealth Group trades at a PE ratio of 15.9x. That stands well below the healthcare industry average of 21.5x and the group of peers, which average 25.8x. On its face, the stock appears attractively discounted for its level of earnings.

Simply Wall St's proprietary "Fair Ratio" refines this picture further by blending industry, profit margins, market cap, risk, and projected growth to calculate a tailored multiple. For UnitedHealth Group, this Fair PE Ratio is 41.3x, which is far above the company's current 15.9x. This means the stock trades at a steep discount even after factoring in its unique strengths and risks. As a result, simple peer or industry comparisons may be less reliable than this more holistic approach.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1423 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's introduce you to Narratives. A Narrative is a straightforward tool that lets you connect your own story and perspective about a company, such as what you believe about its future revenues, earnings, and margins, directly to your fair value estimate and financial forecasts.

This approach helps you see exactly how your unique view turns into a fair value, making it easier to decide when UnitedHealth Group is a bargain or overpriced compared to its actual share price. Narratives are available for everyone to use on Simply Wall St's Community page, where millions of investors share, adjust, and compare their outlooks in real time. Because Narratives update automatically with new news or earnings announcements, your investment thesis always reflects the latest information and keeps you ahead of the curve.

For example, some investors believe UnitedHealth Group's earnings will soar toward $30.7 billion by 2028 and see a fair value as high as $626.0 per share, while others are more cautious, projecting $15.5 billion in earnings and a fair value near $198.0. By exploring Narratives, you can find the outlook that fits your beliefs or build your own.

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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