UnitedHealth Group (UNH) to Report Q2 Earnings: Market’s Focus on Rebound or Continued Decline?
The healthcare giant UnitedHealth Group ($Unitedhealth(UNH.US) ) will be the first to release its Q2 earnings. The healthcare sector has been the worst-performing this year, with stocks falling across the board. The market is now keen to see whether UNH will continue its downward trend or make a strong rebound. Below is my summary:
Why is UNH so closely watched?
Bottom of the market: The healthcare sector has been the worst-performing in the U.S. stock market this year.
Guidance anxiety: UNH and its peers have canceled or lowered their full-year guidance, leaving investors with a very uncertain valuation framework.
Policy changes: Major government programs—ACA (Obamacare), Medicaid, and Medicare—are undergoing significant changes, increasing cost and revenue pressures.
Core business breakdown: UnitedHealthcare + Optum
UnitedHealthcare (Traditional insurance): Operating profit for 2024 is expected to be $16.2 billion, making up half of the total. The Medicare Advantage business is under pressure due to increased visits and rising costs.
Optum (Health services + technology): Expected profit for 2024 is $18.2 billion, accounting for 53% of total profit. It acts like a “bulletproof vest” and is less affected by fluctuations in the insurance market.
Comparison with Centene: Can’t afford to lose vs. UNH stable at half
Centene: Heavy exposure to the ACA market, slashed its guidance from $7.25 to $1.75, leading to a sharp drop in stock price.
UNH: Only about 15% of revenue comes from Medicaid, with commercial insurance and Medicare making up the bulk. EPS decline is expected to be less drastic.
EPS Forecast and “Masterful” Valuation
My rough EPS estimate: About $18.5 for the full year 2025 (although there’s downside risk, it won’t drop below $10).
Implied P/E ratio: Stock price is about $280, implying a 15× PE, which is well below UNH’s historical average of 20–25×.
Investment takeaway: If the data doesn’t “explode,” $280 could be a good entry point—whether it returns to historical premiums depends on the earnings guidance.
Additional Risks and Surprises
Legal investigation: UNH is being investigated by the U.S. Department of Justice due to the “denial of coverage” issue, but a minor settlement is expected.
Data breach costs: The fallout from the Parker hacking incident is still ongoing, but the financial impact is controllable.
PayPal surprise: By the way, PayPal also has some exciting developments next week—new payment methods in China, India, and South America. As the user base grows, so does the revenue.
Valuation: Floor and Ceiling
For companies that no longer deserve historical premium valuations, the difference between the ceiling and the floor can be quite large.
Ceiling: The ceiling is reached by comparing its 18x historical P/E ratio with the 2027 estimated value, arriving at a target of $505 per share.
Floor: UNH’s floor is traded based on its book value multiple. Currently, UNH’s booking rate is 2.7x, implying about 25% downside potential.
Conclusion:
Short-term focus: Earnings report details, EPS, guidance for major sectors, and changes in Medicare costs.
Valuation recovery opportunity: 15× P/E compared to historical 20×, which is attractive for value investors.
Monitor policy and legal developments: New policies or settlements could bring volatility.
In short, after UNH’s earnings report, expect increased volatility in UNH stock. Keep an eye on the post-market earnings call on Tuesday evening (Eastern Time).
The copyright of this article belongs to the original author/organization.
The views expressed herein are solely those of the author and do not reflect the stance of the platform. The content is intended for investment reference purposes only and shall not be considered as investment advice. Please contact us if you have any questions or suggestions regarding the content services provided by the platform.
