UNH Valuation | Alpha Quadrant by The Fifth Person

Questions › Category: Valuation Quadrant › UNH Valuation

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Royston Yap asked 1 year ago

Any thoughts on UNH? Seems undervalued but earnings could drop short term. Good time to do more research?

2 Answers

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Victor Chng Staff answered 1 year ago

Hi Royston,

I would like to understand your perspective. Could you share your thought process on why you believe UNH is undervalued? Also, what are the reasons behind the potential drop in the company’s earnings?

Royston Yap replied 1 year ago

Upsides:
– Near record low PE multiples
– Relatively wide moat: Network effects between their insurance arm and healthcare & technology services arm –> similar to Ping An
– Change of CEO: veteran of the business between 2006 to 2017 (navigated UNH through GFC)
– Increasing premiums moving forward (based on short-term uptick in claims)

Risks:
– Past settlements on alleged frauds
– Rising claim costs although could be short-term (actuarial estimates to be adjusted moving forward)
– Regulatory risks: Trump’s EO which could have an impact on PBM’s margins

Appreciate if you have anything to add above, thanks Victor =D

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Victor Chng Staff answered 1 year ago

Hi Royston,

Based on the information you provided and my own research, it seems that the situation is still in its early stages. The company may face a greater impact if the risks materialise, potentially leading to a decline in earnings. From my past experience with situations, I typically track the company closely and observe the actual impact before making any decisions. Please also note that I have not analysed UnitedHealth before, so my knowledge may be limited. I'm simply sharing my two cents based on situational investing.