Although the S&P 500 is down 1.7% over the past six months, UnitedHealth’s stock price has fallen further to $523.02, losing shareholders 10.3% of their capital. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Given the weaker price action, is now an opportune time to buy UNH? Find out in our full research report, it’s free.
Why Are We Positive On UNH?
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 $400.3 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
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
UnitedHealth’s EPS grew at a spectacular 12.9% compounded annual growth rate over the last five years, higher than its 10.6% 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? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
UnitedHealth’s five-year average ROIC was 40%, 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. After the recent drawdown, the stock trades at 17.6× forward price-to-earnings (or $523.02 per share). Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
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