Morningstar

UnitedHealth Earnings: Solid Performance, Outlook Maintained Despite Challenges

We’ve raised our fair value estimate of UnitedHealth stock.

In this photo illustration, the UnitedHealthcare logo seen displayed on a smartphone screen and in the background.
Securities In This Article
UnitedHealth Group Inc
(UNH)

Key Morningstar Metrics for UnitedHealth Group

What We Thought of UnitedHealth Group’s Earnings

On an adjusted basis, UnitedHealth UNH turned in stronger second-quarter results than expected. This allowed it to maintain its 2024 outlook despite Change-Healthcare-related challenges, South American exit costs, and elevated medical utilization pressuring the firm. After tinkering with our near-term estimates and recognizing cash flows generated since our last valuation update, we are increasing our fair value estimate by 6% to $550 per share from $520.

UnitedHealth reported slightly higher-than-expected operating results for the quarter, including 6% revenue and 11% adjusted earnings per share growth, despite elevated medical utilization trends that caused its medical cost ratio to rise to 85.1%, above its full-year goal of 83.5%-84.5% on an adjusted basis. However, that ratio also included 65 basis points of elevated costs related to Change outage support for caregivers and South American exit costs.

Despite those cost challenges, the medical insurer benefited from 3% medical membership growth year over year, as 9% US commercial growth more than offset an 11% decline in its Medicaid rolls related to eligibility redeterminations. Additionally, the Optum franchises, which represent about half of profits, continued to perform decently, with 12% top-line growth. Optum Health providers (13% revenue growth) and Optum Rx pharmacy benefit manager (up 13%) offset Optum Insight weakness (down 3%), including significant negative effects surrounding the Change network outage.

Management largely stuck to its 2024 guidance, including adjusted earnings per share of $27.50-$28.00, as UnitedHealth’s underlying performance looks likely to offset its near-term challenges. However, that guidance reflects only 9%-11% growth, below the firm’s long-term annual earnings growth goal of 13%-16%, including industrywide headwinds in 2024 such as Medicaid redeterminations, Medicare Advantage constraints, and elevated medical utilization.

UnitedHealth Group Stock vs. Morningstar Fair Value Estimate

Source: Morningstar Direct.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Julie Utterback, CFA

Senior Equity Analyst
More from Author

Julie Utterback, CFA, is a senior equity analyst, AM Healthcare, for Morningstar*. She focuses on medical technology and service companies. She covers managed care organizations including UnitedHealth, service providers like HCA, medical suppliers such as Baxter, and life sciences companies like Danaher. She is also the chairperson of the equity research team’s capital allocation methodology.

Before joining Morningstar in 2005, Utterback was an equity analyst at State Farm Insurance for several years. Utterback joined Morningstar in 2005 as an equity analyst in the healthcare industry, and initially she primarily covered medical technology companies, including orthopedic device, medical equipment, and cardiac device firms. In 2010, she joined Morningstar's credit research team, initiating coverage of the entire healthcare industry and generally helping the organization expand and maintain its credit coverage across many industries. She held that senior credit analyst role until April 2019, when she returned to the equity team to cover medical technology and service companies.

Utterback holds a bachelor's degree in finance from the University of Illinois Urbana-Champaign’s Gies College of Business. She also holds the Chartered Financial Analyst® designation.

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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