What To Expect From UnitedHealth’s Q2?

UnitedHealth Group (NYSE: UNH) is scheduled to report its Q2 2022 results on Friday, July 15. We expect UnitedHealth to post revenue and earnings above the street expectations. The company will likely benefit from the increased contribution of the Optum Health business, while its private health insurance and pharmacy management businesses should see steady growth. However, with the post-pandemic recovery and rise in the volume of procedures performed, the company’s medical costs ratio will likely trend higher, weighing on its overall earnings growth.

While we expect the company to navigate well over the latest quarter, our forecast indicates that UNH stock is fairly valued at its current levels, as discussed below. Our interactive dashboard analysis of UnitedHealth’s Earnings Preview has additional details.

(1) Revenues expected to be slightly above the consensus estimates

• Trefis estimates UnitedHealth’s Q2 2022 net revenues to be around $79.9 billion, slightly above the $79.7 billion consensus estimate.
• With the economic growth picking up, the pharmacy management and health insurance businesses are expected to see sales growth.
• Furthermore, with the rising employment levels in the U.S., UnitedHealth’s employer-sponsored plans likely aided its Q2 sales growth. The U.S. unemployment rate fell to 3.6% in June 2022, compared to 6.7% in December 2020 and 3.9% in December 2021.
• Optum Health, which provides care through local medical groups, has seen substantial growth over the recent quarters, a trend expected to continue in the near term.
• For perspective, Optum Health’s revenue grew 36% y-o-y to $54.1 billion in 2021, compared to just 12% overall gross revenue growth for the company. In Q1 2021, Optum Health sales were up 34% to $16.7 billion.
• The strong growth in the Optum Health business can be attributed to a rise in the number of patients served under the company’s value-based arrangements, including at-home services.
• Our dashboard on UnitedHealth Group Revenues has more details.
• The company recently announced the acquisition of EMIS – a U.K.-based health-tech company – for $1.5 billion. This will enhance UnitedHealth’s IT services in the U.K.
• UnitedHealth’s acquisition of Change Healthcare, another health-tech company, valued at $8 billion – is facing a legal challenge from the Department of Justice on antitrust grounds. If successful, both of these acquisitions will help UNH improve its technology, including streamlining the company’s administrative and payment processes.

(2) EPS likely to be above the consensus estimates

• UnitedHealth’s Q2 2022 adjusted earnings per share (EPS) is expected to be $5.25 per Trefis analysis, slightly above the consensus estimate of $5.20.
• UnitedHealth’s adjusted net income of $5.2 billion in Q1 2022 reflected a 3% rise from its $5.1 billion figure in the prior-year quarter, as a 14% sales growth was partly offset by a 70 bps decline in net margin.
• For the full-year 2022, we expect the adjusted EPS to be higher at $21.85 compared to EPS of $19.02 in 2021.

(3) Stock price estimate in-line with the current market price

• We estimate UnitedHealth Group’s Valuation to be around $550 per share, which is just 6% above the current market price.
• This represents a forward P/EBITDA multiple of 5x for the company based on our forecast for UnitedHealth Group EBITDA.
• While we expect the company to see strong earnings growth over the coming years, driven by Optum and increased Medicare enrollments, UNH stock appears reasonably priced at current levels. We believe investors may be better off waiting for a dip to buy the stock for higher gains.
• That said, if the company reports upbeat Q2 results and provides an outlook better than the street estimates, it is likely that the P/EBITDA multiple will be revised upward, resulting in higher levels for UNH stock.