Morningstar

UnitedHealth Maintains Earnings Guidance for 2021

We do not plan on changing our moat rating or fair value estimate for the company.

Securities In This Article
UnitedHealth Group Inc
(UNH)

Narrow-moat UnitedHealth UNH released its operating results for 2020 that beat our expectations slightly in terms of adjusted EPS and significantly in terms of cash flow due to timing issues. However, the firm maintained its guidance for 2021 that was given at its December investor day. While there appears to be further upside in those 2021 earnings goals if COVID-related constraints are more modest that currently anticipated, we expect to keep our near-term expectations and recently raised $329 fair value estimate roughly intact for now. In 2020, the company beat our expectations and its own recently raised guidance for the year, turning in $257 billion in revenue for the year (in line with expectations) and adjusted earnings per share of $16.88 (higher than its previous guidance of $16.50-$16.75). That mild outperformance on the bottom line does not change UnitedHealth's fair value. We would note, though, that the firm's cash flows were stronger in 2020 than we anticipated, with free cash flow coming in at $20 billion for the year (versus our $17 billion expectation). Management highlighted that early customer receipts led to that outperformance. At its analyst day, the company guided to $20 billion-$21 billion of operating cash flow in 2021 (which could lead to free cash flow of around $19 billion), but it did not back that guidance during this call, suggesting that the better-than-expected cash flows in 2020 may reverse in 2021, as timing issues normalize. Therefore, we may trim our expected 2021 free cash flow assumption moderately. For 2021, the company maintained its adjusted EPS guidance but continued to highlight potential constraints of $1.80 based on the COVID-related health and economic effects. So while our estimate for adjusted EPS will likely remain within the company's target range for 2021 ($17.75-$18.25), we recognize that there may be upside potential if those effects are not as severe as currently expected.

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About the Author

Julie Utterback, CFA

Senior Equity Analyst
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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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