UnitedHealth Group stock (NYSE: UNH), with -3% returns since the beginning of 2024, has underperformed the broader S&P500 index, up 28%. This can primarily be attributed to rising medical costs, weighing on the company’s profitability. Even if we look at a slightly longer period, UNH stock hasn’t fared well, moving from levels of around $515 in early 2023 to $500 now. This can be attributed to:
- a 25% rise in the company’s adjusted earnings from $22.19 in 2022 to $27.66 now; mostly offset by,
- a 22% fall in the company’s trailing P/E ratio from 23x to 18x over this period.
UNH stock has been an underperformer lately. But, if are looking for an upside with a smoother ride than an individual stock, consider the High-Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.
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What Drove UnitedHealth Group’s Earnings Growth?
UnitedHealth’s revenue growth was primarily attributable to the substantial expansion of its OptumHealth business segment, which provides healthcare services through affiliated medical groups. OptumHealth’s revenue increased by 48% between 2022 and 2024, markedly exceeding the company’s overall revenue growth of 23%. This robust performance is correlated with an increase in patient volume under value-based care arrangements, inclusive of at-home services. UnitedHealth’s insurance business saw sales growth of over 20% in both the Medicaid and Medicare segments between 2022 and 2024, fueled by increased customer enrollment.
While UnitedHealth experienced revenue growth, its operating margin declined slightly, from 8.8% in 2022 to the current 8.1%. This contraction is partly attributed to rising medical costs, which increased by 25% over the same period. The company’s profitability was also negatively affected by a cyberattack last year. Despite a slight decline in operating margins, UnitedHealth achieved a 25% increase in earnings per share, rising from $22.19 to $27.66. This growth slightly exceeded revenue growth, primarily due to a 3% reduction in the number of outstanding shares, facilitated by $24 billion in share repurchases.
What’s Behind The Falling Valuation Multiple?
UNH stock has faced investor pressure due to rising medical costs, which have pushed the medical care ratio up from 82% in 2022 to 85.5% in 2024. Furthermore, recent quarterly sales figures fell short of street estimates, and the company’s 2025 EPS outlook of $30 (at the high end of the range), given the elevated medical costs, failed to reassure investors. These factors have contributed to a lower P/E ratio for UNH.
Turning to UNH stock, apart from its underperformance, it has been volatile. The changes in UNH stock over the last four-year period have been far from consistent and has largely been as volatile as the S&P 500. Returns for the stock were 45% in 2021, 7% in 2022, 1% in 2023, and -2% in 2024.
In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is less volatile. And it has comfortably outperformed the S&P 500 over the last four-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
Given the current uncertain macroeconomic environment around rate cuts and ongoing trade wars, could UNH face a similar situation as it did in 2023 and 2024 and underperform the S&P over the next 12 months — or will it see a strong jump? Now, from a valuation perspective, we think UNH stock has ample room for growth.
We estimate UnitedHealth Group’s Valuation to be $606 per share, reflecting around 20% upside from its current levels of $500. UNH stock is currently trading at a price-to-earnings ratio of 18x, compared to its four-year average of 22x. While some downward adjustment to the valuation multiple is warranted due to concerns about high medical costs, we believe the current price dip presents an attractive entry point for investors seeking long-term growth.
While UNH stock looks like it has room for growth, it is helpful to see how UnitedHealth Group Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
| Returns | Feb 2025 MTD [1] |
Since start of 2024 [1] |
2017-25 Total [2] |
| UNH Return | -8% | -3% | 252% |
| S&P 500 Return | 1% | 28% | 173% |
| Trefis Reinforced Value Portfolio | -2% | 21% | 719% |
[1] Returns as of 2/19/2025
[2] Cumulative total returns since the end of 2016
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
