UnitedHealth Group (NYSE: UNH) recently reported its Q4 results, with revenues missing and earnings exceeding the street expectations. The company reported revenue of $100.8 billion and adjusted earnings of $6.81 per share, compared to the consensus estimates of $101.8 billion and $6.72, respectively. Despite an upbeat earnings, UNH stock dropped as much as 6% on Thursday, January 16, as the company’s medical costs trended higher. If you want 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.
How Did UNH Fare In Q4?
UnitedHealth Group’s revenue of $100.8 billion in Q4 reflects a 7% y-o-y growth, led by higher sales in both the UnitedHealth and Optum segments, which grew 5% and 9% (y-o-y), respectively. The key metric which investors were eyeing was the medical care ratio, which came in at 87.6%, versus 85% in the prior-year quarter. This was higher than the consensus estimates of around a 100 bps rise. The company reported an adjusted EPS of $6.81 per share as compared to $6.16 in the prior year quarter.
Overall, while the company reported a beat on the bottom line, investors weren’t happy with the higher medical costs and the outlook for 2025. The company expects the medical costs to remain elevated in 2025; though that is reflected in the earnings outlook of $29.50 to $30.00 per share.
What Does This Mean For UNH Stock?
It is evident from the decline in UNH stock that the investors weren’t happy with the medical costs. UNH stock is down 1% since the beginning of 2024, versus a 25% rise for the broader S&P500 index. Looking at a slightly longer period, the increase in UNH stock over the last four-year period has 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.
The Trefis High Quality Portfolio, with a collection of 30 stocks, is less volatile. And it has comfortably outperformed the S&P 500 over the last 4-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 changes in the White House, 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? From a valuation perspective, UNH stock looks like it can see higher levels from here. At its current levels of $510, it trades at 17x forward expected earnings of $29.75 – at the mid-point of the provided range, versus the stock’s average P/E ratio of 21x over the last three years.
While UNH stock looks like it has some 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.
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