UnitedHealth (Ticker: $UNH) - Brief Breakdown
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Company Description and Qualitative Analysis
UnitedHealth Group $UNH operates four segments of health care: UnitedHealthcare, Optum Health, Optum Insight, and Optum Rx. UnitedHealthcare offers consumer-oriented health benefit plans and services for employers. UnitedHealth has the highest market share of any health insurance company and the highest market cap. UnitedHealth offers every aspect of health insurance and the moat for insurance companies is massive as long as the companies do not decide to switch providers. The switch generally takes some time and is only evaluated once or so a year, therefore consistent and anticipated profits will be made throughout the year.
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Quantitative Analysis
At the time of this writing (9/12/2022), UNH is trading at $524.34 with a market cap of $490.46B and a 52-week range of $383.12 - $553.29. In Q2 of 2022, UnitedHealth revenues grew 13% YoY to $80.3 billion, earnings from operations were $7.1 billion up 19% YoY, and cash flows from operations were 1.3x net income to $6.9 billion. The price to earnings ratio (P/E) is 27.39, the net margin is 5.99%, debt to equities ratio is 2.05, and the dividend yield is 1.18%. You can view UNH’s 2022 Q2 earnings here and their 2021 Annual Report here.
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Bullish Thesis
Here are three points to support the bullish thesis:
  • Diversification of Health Care: UnitedHealth offers all kinds of health insurance products that covers every possible health issue someone may have. The complete coverage of health, eye, and dental insurance allows UnitedHealth to be a one stop shop for health insurance for companies. This allows ease of use for employers to provide great benefits to their employees without having multiple vendors.
  • Moat: Companies very rarely switch providers. As long as companies do not go under or fail, insurance will consistently be provided by employers. As UniteHealth is diversified and gives companies no reason to switch (i.e. drastically hiking rates and lowering coverage), companies will stay as loyal customers for some time.
  • Health Insurance Necessity: Health insurance is an increasing necessity in today’s society. Now with the passing of the COVID-19 pandemic, everyone is seemingly more conscious of their own health and that also comes with health insurance. More potential employees will take benefits into account with the growing number of jobs available.
Bearish Thesis
Here are three points to support the bearish thesis:
  • Steady growth with no potential shoot up: Insurance is not a sexy business that will skyrocket in profits so I do not imagine the stock price will ever do that as well. Insurance and UNH will be a steady gaining profit company that does distribute a dividend, but if you’re looking for large growth this is not the play.
  • Potential Influx of Claims: There has been a delay on major surgeries, procedures and people generally have not been getting as sick because they have stayed in their home with lockdowns. Now that people are getting surgery and going back into the office, there is more risk of people that will be filing claims for their health insurance. The increased claims cuts into the profits of the company and this could be a potential case to lookout for.
  • Audit of Data Storage: UnitedHealth is being audited by the Department of Justice for their data practices, according to Bloomberg. The data practices caused the acquisition of Change Healthcare Inc blocked, although an internal audit showed no misuse of data. This case is not ideal for a company in the short term, but it could be an opportunity to buy on some negative publicity if you believe in the business long term.
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