Offshore

⁠Dimitry Nakhla | Babylon Capital®
A quality valuation analysis on $UNH 🧘🏽‍♂️

•NTM P/E Ratio: 11.17x
•10-Year Mean: 18.80x

•NTM FCF Yield: 11.28%
•5-Year Mean: 5.70%

As you can see, $UNH appears to be trading below fair value

Going forward, investors can receive ~68% MORE in earnings per share & ~98% MORE in FCF per share 🧠***

Before we get into valuation, let’s take a look at why $UNH is a good business

BALANCE SHEET✅
•Cash & Total Inv: $86.16B
•Long-Term Debt: $71.29B

$UNH has a strong balance sheet, an A+ S&P Credit Rating & ~7x FFO Interest Coverage

RETURN ON CAPITAL✅
•2020: 19.1%
•2021: 19.1%
•2022: 19.4%
•2023: 19.7%
•2024: 17.2%

RETURN ON EQUITY✅
•2020: 23.8%
•2021: 24.1%
•2022: 25.4%
•2023: 25.0%
•2024: 15.1%

$UNH has strong return metrics, highlighting the financial efficiency of the business

REVENUES✅
•2014: $130.47B
•2024: $400.28B
•CAGR: 11.86%

FREE CASH FLOW✅
•2014: $6.53B
•2024: $20.71B
•CAGR: 12.23%

NORMALIZED EPS✅
•2014: $5.70
•2024: $27.66
•CAGR: 17.11%

PAID DIVIDENDS✅
•2014: $1.41
•2024: $8.18
•CAGR: 19.22%

SHARE BUYBACKS🆗
•2019 Shares Outstanding: 966M
•LTM Shares Outstanding: 928M

By reducing its shares outstanding ~3.9%, $UNH increased its EPS by ~4.0% (assuming 0 growth)

MARGINS🆗
•LTM Operating Margins: 8.2%
•LTM Net Income Margins: 5.4%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~68% MORE in EPS & ~98% MORE in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $UNH has to grow earnings at a 5.59% CAGR over the next several years to justify its valuation

However, given recent events & the fact $UNH withdrew FY guidance for 2025, let’s assume $26.00 in EPS for 2027 (20% below current estimates) & see $UNH CAGR potential assuming different multiples:

2027E: $26.00
___

17x P/E: $442💵 … ~22.9% CAGR

16x P/E: $416💵 … ~20.1% CAGR

15x P/E: $390💵 … ~17.3% CAGR

14x P/E: $364💵 … ~14.4% CAGR

13x P/E: $338💵 … ~11.3% CAGR

12x P/E: $318💵 … ~8.1% CAGR

As you can see, $UNH appears to have attractive return potential even if we assume >13 earnings)

The question becomes: can we reasonably assume a 13x multiple for $UNH by the end of 2027?

There is great uncertainty moving forward so those buying $UNH today would be taking a leap of faith in future assumptions

Today at $275💵 $UNH appears to be a decent contrarian play with strong upside potential

However, for me, there is too much uncertainty surrounding $UNH and I’d rather reserve my capital to be invested in the world’s greatest quality companies that come with a high degree of certainty & significantly less exposure to political & regulatory risks

A contrarian bet on $UNH might pay off for bulls, but I’ve seen early moves like this hurt returns and miss better opportunities — quality businesses with far fewer risks and stronger predictability

Good luck to those who take that leap of faith 👍🏽
___

𝐃𝐈𝐒𝐂𝐋𝐎𝐒𝐔𝐑𝐄‼️: 𝐓𝐡𝐢𝐬 𝐢𝐬 𝐍𝐎𝐓 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐀𝐝𝐯𝐢𝐜𝐞. 𝐁𝐚𝐛𝐲𝐥𝐨𝐧 𝐂𝐚𝐩𝐢𝐭𝐚𝐥® 𝐚𝐧𝐝 𝐢𝐭𝐬 𝐫𝐞𝐩𝐫𝐞𝐬𝐞𝐧𝐭𝐚𝐭𝐢𝐯𝐞𝐬 𝐦𝐚𝐲 𝐡𝐚𝐯𝐞 𝐩𝐨𝐬𝐢𝐭𝐢𝐨𝐧𝐬 𝐢𝐧 𝐭𝐡𝐞 𝐬𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬 𝐝𝐢𝐬𝐜𝐮𝐬𝐬𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭.

𝐓𝐡𝐞 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐢𝐬 𝐢𝐧𝐭𝐞𝐧𝐝𝐞𝐝 𝐟𝐨𝐫 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐩𝐮𝐫𝐩𝐨𝐬𝐞𝐬 𝐨𝐧𝐥𝐲 𝐚𝐧𝐝 𝐬𝐡𝐨𝐮𝐥𝐝 𝐧𝐨𝐭 𝐛𝐞 𝐜𝐨𝐧𝐬𝐭𝐫𝐮𝐞𝐝 𝐚𝐬 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐚𝐝𝐯𝐢𝐜𝐞 𝐭𝐨 𝐦𝐞𝐞𝐭 𝐭𝐡𝐞 𝐬𝐩𝐞𝐜𝐢𝐟𝐢𝐜 𝐧𝐞𝐞𝐝𝐬 𝐨𝐟 𝐚𝐧𝐲 𝐢𝐧𝐝𝐢𝐯𝐢𝐝𝐮𝐚𝐥 𝐨𝐫 𝐬𝐢𝐭𝐮𝐚𝐭𝐢𝐨𝐧. 𝐏𝐚𝐬𝐭 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞 𝐢𝐬 𝐧𝐨 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞 𝐨𝐟 𝐟𝐮𝐭𝐮𝐫𝐞 𝐫𝐞𝐬𝐮𝐥𝐭𝐬.

𝐈𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐡𝐚𝐬 𝐛𝐞𝐞𝐧 𝐨𝐛𝐭𝐚𝐢𝐧𝐞𝐝 𝐟𝐫𝐨𝐦 𝐬𝐨𝐮𝐫𝐜𝐞𝐬 𝐛𝐞𝐥�[...]

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