Dimitry Nakhla | Babylon Capital®
RT @DimitryNakhla: @BourbonFps Really like $UNH here 👌🏽

A sober valuation analysis on $UNH 🧘🏽‍♂️

•NTM P/E Ratio: 16.50x
•5-Year Mean: 19.67x

•NTM FCF Yield: 6.84%
•5-Year Mean: 5.86%

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

Going forward, investors can receive ~19% MORE in earnings per share & ~17% MORE in FCF per share 🧠***

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

BALANCE SHEET✅
•Cash & Total Inv: $75.34B
•Long-Term Debt: $58.26B

$UNH has a strong balance sheet, an A+ S&P Credit Rating & 8.96x FFO Interest Coverage

RETURN ON CAPITAL✅
•2019: 18.6%
•2020: 19.1%
•2021: 19.1%
•2022: 19.4%
•2023: 19.1%

RETURN ON EQUITY✅
•2019: 24.1%
•2020: 23.8%
•2021: 24.1%
•2022: 25.4%
•2023: 25.0%

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

REVENUES✅
•2013: $122.49B
•2023: $371.62B
•CAGR: 11.73%

FREE CASH FLOW✅
•2013: $5.68B
•2023: $25.68B
•CAGR: 16.28%

NORMALIZED EPS✅
•2013: $5.50
•2023: $25.12
•CAGR: 16.40%

PAID DIVIDENDS✅
•2013: $1.05
•2023: $7.29
•CAGR: 21.38%

SHARE BUYBACKS✅
•2013 Shares Outstanding: 1.02B
•LTM Shares Outstanding: 0.94B

By reducing its shares outstanding ~7.8%, $UNH increased its EPS by ~8.4% (assuming 0 growth)

MARGINS✅
•LTM Gross Margins: 14.6%
•LTM Operating Margins: 8.7%
•LTM Net Income Margins: 6.0%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~19% MORE in EPS & ~17% more in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $UNH has to grow earnings at a 8.25% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2024 - 2025 EPS growth over the next few years to be more than the (8.25%) required growth rate

However, consider the recent Medicare Rate Decision, I’ve assumed only a 10% EPS growth rate for 2025 & 2026 💡 (well below the current expected rates of 12.8% for both years):

2024E: $27.77 (10.6% YoY) *FY Dec
2025E: $30.54 (10.0% YoY)
2026E: $33.59 (10.0% YoY)

$UNH has an excellent track record of meeting analyst estimates ~2 years out, so let’s assume $UNH ends 2026 with $33.59 in EPS & see its CAGR potential assuming different multiples

19x P/E: $638.21💵 … ~14.3% CAGR

18x P/E: $604.62💵 … ~12.1% CAGR

17x P/E: $571.03💵 … ~9.9% CAGR

As you can see, $UNH appears to have attractive return potential even if we assume 18x earnings (a multiple below both its 5-year & 10-year mean) & a reduced growth rate

That’s a great rate of return for an excellent capital allocator & wide-moat recession-proof business like $UNH

Today at $458💵 $UNH appears to be a strong consideration for investment

However, keep in mind how volatile $UNH (and all health insurers) can get amid regulatory & political risks

Those considering $UNH would be wise to piece into the position, leaving room for additional purchases if $UNH continues to trade down to an even more attractive valuation

E.g. 1/3 of the purchase at $458💵, another 1/3 at $410💵, & 1/3 at $380💵

#stocks #investing
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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 𝐛𝐞𝐥𝐢𝐞𝐯𝐞𝐝 𝐭𝐨 𝐛𝐞 𝐫𝐞𝐥𝐢𝐚𝐛𝐥𝐞, 𝐛𝐮𝐭 𝐢𝐬 𝐧𝐨𝐭 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞𝐝 𝐚𝐬 𝐭𝐨 𝐜𝐨𝐦𝐩𝐥𝐞𝐭𝐞𝐧𝐞𝐬𝐬 𝐨𝐫 𝐚𝐜𝐜𝐮𝐫𝐚𝐜𝐲. - Dimitry Nakhla | Babylon Capital®
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The Long Investor
If you want to know where the market is going, you need to understand Commodities and Bonds first.
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Antonio Linares
My 2 Hour Deep Diver course is selling for $150 instead of $199 for the next 3 hours only.

Don’t miss out.
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The Long Investor
I believe there are three types of investors:

1. The Buy and Hold investor, any substantial dip and this investor buys, focuses solely on Long Term, most suited for buying ETF's such as the $SPY.

2. The Buy before the breakout investor (High Risk)...this investor usually struggles to wait for confirmation out of fear of missing a strong bounce, usually very convinced of their assessment.

3. The Buy after support is confirmed investor (Low Risk) This Investor prefers to give up some gains in order to lower their risk, this is harder to do because you need more discipline then Investor Number 2.

- Ideal: Investor Number 3
- Most people are: Investor Number 2
- Rare: Investor Number 1.
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Giuliano
Adam Smith on banks. https://t.co/O7WDVnCcQc
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Giuliano
The first thing I see Adam Smith got wrong. https://t.co/QaJtwjtOzp
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The Long Investor
IMF has just said that the US will grow by 2.7% this year.

Double the rate of some G7 peers

Meanwhile China has grown by over 5% in 2023 and expected to grow by 5% in 2024

https://t.co/zyUiFRYR1y
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Giuliano
With the objective of analyzing some Latin American equities, I'll try expand my circle of competence. https://t.co/u5Wj35xNBy
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The Long Investor
$TSLA $144 now appears inevitable.

It either holds there or $102 is tested next. https://t.co/u7SFeWHiLK

$TSLA's move today I believe is preparing them for Long Term.

They currently have 140,000 employees with a 1.8 million output of vehicles per year.

$F currently employs 170,000 employees with an output of 4.4 million vehicles per year.

$TSLA need to automate and become more efficient, this was the aim today by reducing their head count.

Also their chart is beautiful. - The Long Investor
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The Long Investor
$VIX up 25%
- Broke out of its channel
and about to get a golden cross. https://t.co/BhHnjCgcsQ
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The Long Investor
$AMZN hard to argue the significance of this rejection at its ATH line. https://t.co/FX2hd82YRU

$AMZN hitting $189 yesterday signalled the last of the Mega Caps to reach their ATH levels after the 2021 decline.

Wave 5’s typically need to reach a higher high to complete, which is found now in all Mega Caps and the $SPY

Extraordinary timing to complete only yesterday.

The market is showing reversal indications on a number of fronts now.

When the $SPY and $QQQ lose their 50 Day MA, plans to conserve capital (if you have not done this already) should be put in place.

There is no excuse not to be prepared now - The Long Investor
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The Long Investor
BYD has a whopping 700k employees and produced 3 million cars in 2023.

That is 4 cars per employee.

Ha

So they are either planning for a massive expansion or their costs of labour is so low that many western manufacturers can not compete with this.

Either way, both adds pressure on $TSLA.
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Giuliano
Munger on the cost of capital

“Obviously, considerations of costs are important in business, And we always had that kind of thinking."

"Of course capital isn’t free, and you can easily figure your cost of loans, but the theorists had to make a measure for what equity costs, and there they just went bonkers.”

“They said that if you earn a 100% percent on capital because you have such a lovely business, your cost of capital is a 100% and therefore you shouldn’t look at opportunities that generates a lousy 80%, that is the kind of thinking that came out of the capital-asset pricing models that I always considered insanity”

“What is Berkshire Hathaway cost of capital? We have this damn capital, it just keeps on multiplying, what is its cost?

You have perfectly good old-fashioned doctrines like opportunity cost, and in every single time we consider an investment, we need to compare it to the best alternative investment we have at that time. But such perfectly good doctrines were not good enough for these modern theorists, so they invented all this ridiculous mathematics which concluded that the companies that made the most money had the highest cost of capital. All I can say that this is not for us.”

h/t Investorhub Blog.
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