UnitedHealth Group Inc. Annual Valuation – 2014 $UNH

UnitedHealth_Group_logoBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – November 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how UnitedHealth Group Inc. (UNH) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): UnitedHealth Group Incorporated (UnitedHealthcare) is a diversified health and well-being company. The Company offers a spectrum of products and services through two platforms: UnitedHealthcare, which provides healthcare coverage and benefits services, and Optum, which provides information and technology-enabled health services. It has four segments across its two business platforms: UnitedHealthcare, which includes UnitedHealthcare Employer & Individual, UnitedHealthcare Medicare & Retirement, UnitedHealthcare Community & State and UnitedHealthcare International; OptumHealth; OptumInsight, and OptumRx. UnitedHealthcare provides healthcare benefits to a full spectrum of customers and markets. Optum is a health services business serving the broad healthcare marketplace, including payers, care providers, employers, government, life sciences companies and consumers.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio – PEmg is less than 20 - PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 -FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $95.11
MG Value $136.02
MG Opinion Undervalued
Value Based on 3% Growth $76.75
Value Based on 0% Growth $44.99
Market Implied Growth Rate 4.73%
NCAV -$30.41
PEmg 17.97
Current Ratio 0.74
PB Ratio 2.86

Balance Sheet – September 2014

Current Assets $22,963,000,000
Current Liabilities $31,130,000,000
Total Debt $14,592,000,000
Total Assets $85,426,000,000
Intangible Assets $35,936,000,000
Total Liabilities $52,822,000,000
Outstanding Shares 982,000,000

Earnings Per Share

2014 (estimate) $5.60
2013 $5.50
2012 $5.28
2011 $4.73
2010 $4.10
2009 $3.24
2008 $2.40
2007 $3.42
2006 $2.97
2005 $2.48
2004 $1.97

Earnings Per Share – ModernGraham

2014 (estimate) $5.29
2013 $4.95
2012 $4.43
2011 $3.87
2010 $3.36
2009 $2.97

Dividend History


UnitedHealth Group does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned by the low current ratio, and the high PB ratio.  The Enterprising Investor is concerned by the high level of debt relative to the current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time.  From a valuation side of things,  the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $3.36 in 2010 to an estimated $5.29 for 2014.  This demonstrated level of growth outpaces the market’s implied estimate of 4.73% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.

Be sure to check out previous ModernGraham valuations of UnitedHealth Group (UNH) for greater perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on UnitedHealth Group (UNH)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in UnitedHealth Group (UNH) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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