Key Takeaways:
- The 2-Minute Valuation Model values UNH stock at $543 per share in 2 years.
- That’s a potential 38% upside from today’s price of $395 per share.
- UnitedHealth’s earnings-per-share is projected to grow a total of 26% over the next 3 years despite near-term challenges.
- UNH stock trades at just 14.6x forward earnings, at the low end of its historical range and below its 5-year average of 20.1x.
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UnitedHealth Group (UNH) stands as the largest health insurer in the United States, serving approximately 50 million members through its diverse portfolio of businesses, including UnitedHealthcare (insurance) and Optum (healthcare services).
Despite its dominant market position and consistent track record of growth, UNH stock has experienced significant pressure, creating what appears to be a compelling valuation opportunity in a traditionally defensive sector.
Let’s analyze whether UNH’s current valuation offers an attractive entry point for long-term investors.
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What is the 2-Minute Valuation Model?
Three core factors drive a stock’s long-term value:
- Revenue Growth: How big the business becomes.
- Margins: How much the business earns in profit.
- Multiple: How much investors are willing to pay for a business’s earnings.
Our 2-Minute Valuation Model uses a simple formula to value stocks:
Expected Normalized EPS * Forward P/E ratio = Expected Share Price
Revenue growth and margins drive a company’s long-term normalized earnings per share (EPS), and investors can use a stock’s long-term average P/E multiple to get an idea of how the market values a company.
Why UNH Stock Looks Undervalued
Forecast
UnitedHealth is projected to navigate current challenges before resuming strong growth. According to analyst estimates, UNH earnings are likely to dip in 2025, reflecting ongoing Medicare Advantage rate pressures and rising medical cost trends, before a robust recovery in 2026 and 2027.
The projected 26% cumulative earnings growth from 2024 to 2027 demonstrates UnitedHealth’s underlying business strength and ability to adapt to changing healthcare dynamics.
This earnings growth for UNH stock is likely to be driven by:
- Diversified Business Model: UnitedHealth’s combination of insurance (UnitedHealthcare) and healthcare services (Optum) provides revenue diversification and multiple growth avenues, reducing exposure to any single market segment.
- Scale Advantages: As the largest health insurer in the U.S., UNH benefits from unmatched scale, data analytics capabilities, and negotiating power with healthcare providers.
- Optum Growth Engine: The Optum segment continues to expand through organic growth and strategic acquisitions, providing higher-margin revenue streams and vertical integration benefits.
- Demographic Tailwinds: An aging U.S. population drives increasing healthcare utilization, which will benefit UNH’s core businesses over the long term.
We’ll assume in our valuation that UNH stock will report $35 in EPS in 2027.
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Is UnitedHealth Stock Undervalued Right Now?
UnitedHealth’s current valuation metrics suggest that the healthcare stock could be undervalued relative to its growth prospects.
Over the last five years, UNH stock has averaged a forward P/E multiple of 20x, with peaks above 25x during growth-oriented market periods. Currently, UNH stock trades at about 15 times forward earnings.
This compressed valuation appears to reflect concerns about medical cost trends, Medicare Advantage profitability, and recent cybersecurity issues at Change Healthcare.
Still, it may not fully account for the company’s diverse revenue streams, scale advantages, and consistent long-term execution.
We’ll use a conservative forward P/E multiple of 15x for our valuation, which is below the historical average trading multiple. The stock could return to a 20x P/E valuation multiple if the business continues to sustain double-digit annual earnings growth after 2027.
Fair Value of UNH Stock
Using our 2-Minute Valuation Model and applying a conservative approach:
- Conservative 2027 EPS estimate: $35
- Conservative forward P/E multiple: 15x
- Expected dividends over the next 2 years: $18
Expected Normalized EPS ($35) * Forward P/E ratio (15x) + Expected Dividends ($18) = Expected Share Price ($545)
The 2-year expected UNH stock price we would get from this valuation is $545 per share.
With UNH stock currently trading at around $395 per share, this implies that United Health stock could see a potential upside of 38% over the next two years or a 17% annualized return.
Remember, this is just a valuation exercise, and we don’t know for sure what the stock’s price will be in the future.
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What is the Target Price for UNH Stock?
Analysts have an average price target of around $548 per share for UnitedHealth stock, indicating they see nearly 39% upside today for the healthcare giant based on its current share price:
Risks to Consider
Even though our valuation and analysts’ price targets suggest the stock could be worth around $543 per share, investors should be aware of several risks for the stock:
- Medical Cost Trends: Rising healthcare costs, particularly in the Medicare Advantage segment, could pressure margins if they exceed premium increases.
- Regulatory Environment: Healthcare remains heavily regulated, with potential policy changes that could impact insurance markets and reimbursement rates.
- Competitive Pressures: UNH faces competition from traditional insurers and new entrants leveraging technology to disrupt healthcare delivery and financing.
- Cybersecurity Concerns: The recent Change Healthcare ransomware attack highlighted vulnerabilities in healthcare IT systems and financial and reputational risks.
- Size Limitations: UNH’s dominant market position may limit future U.S. acquisition opportunities due to antitrust concerns, which could slow down its inorganic growth opportunities.
TIKR Takeaway
UnitedHealth Group represents a rare opportunity to invest in a market-leading healthcare company with defensive characteristics at a historically attractive valuation.
The stock’s current discount relative to its historical average multiple creates a compelling risk-reward profile, particularly given the company’s projected earnings recovery and growth in 2026 and beyond.
The temporary earnings pressure expected in 2025 appears well-accounted for in the current share price, creating an attractive entry point for long-term investors.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
