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UnitedHealth Group Inc. (NYSE:UNH) recently reported its preliminary financial results based on which CapitalCube provides a unique peer-based analysis of the company. Our analysis is based on the company's performance over the last 12 months (unless stated otherwise).

UnitedHealth Group Inc.'s analysis versus peers uses the following peer-set: AFLAC Inc. (NYSE:AFL), WellPoint Inc. (NYSE:WLP), Aetna Inc. (NYSE:AET), Cigna Corporation (NYSE:CI), Sun Life Financial Inc. (NYSE:SLF) and Humana Inc. (NYSE:HUM). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Quarterly (USD million)2012-09-302012-06-302012-03-312011-12-312011-09-30
Revenues27,302.027,266.027,285.025,918.025,284.0
Revenue Growth %0.1(0.1)5.32.50.2
Net Income1,557.01,337.01,388.01,258.01,271.0
Net Income Growth %16.5(3.7)10.3(1.0)0.3
Net Margin %5.74.95.14.95.0
ROE % (Annualized)20.918.419.618.218.7
ROA % (Annualized)8.67.37.97.37.4

Valuation Drivers

UnitedHealth Group Inc.'s current Price/Book of 2.0 is about median in its peer group. UnitedHealth Group Inc.'s operating performance is higher than the median of its chosen peers (ROE of 19.2% compared to the peer median ROE of 15.7%) but the market does not seem to expect higher growth relative to peers (PE of 10.8 compared to peer median of 9.4) but simply to maintain its relatively high rates of return.

The company's capital efficiency (capital turns i.e.revenue/equity of 3.7x) and net profit margins of 5.1% are both median for its peer group. UnitedHealth Group Inc.'s net margin continues to trend upward and is now similar to its five-year average net margin of 4.8%.

Economic Moat

The company enjoys both better than peer median annual revenue growth of 8.2% and better than peer median earnings growth performance 11.0%. UnitedHealth Group Inc. currently converts every 1% of change in annual revenue into 1.3% of change in annual reported earnings. We view this company as a leader among its peers.

UnitedHealth Group Inc.'s current return on equity is better than its peer median (19.2% vs. peer median 15.7%). However, its return on equity over the past five years has only been around the peer median (18.6% vs. peer median 18.6%). This performance suggests that the company may recently have found some new operational advantages to exploit relative to peers.

Growth And Investment Strategy

While UnitedHealth Group Inc.'s revenues have grown faster than the peer median (7.8% vs. 4.8% respectively for the past three years), the market gives the stock an about peer median PE ratio of 10.8. This suggests that the market has some questions about the company's long-term strategy.

UnitedHealth Group Inc.'s annualized rate of change in equity capital of 10.2% over the past three years is around its peer median of 10.2%. This median investment has likewise generated a peer median return on equity of 18.5% averaged over the same three years. This median return on investment implies that company is investing appropriately.

Earnings Quality

UnitedHealth Group Inc.'s reported net income margin for the last twelve months is around the peer median (5.1% vs. peer median of 4.9%). However, the company has also recorded a relatively low level of accruals (-0.4% vs. peer median of 6.1%) which suggests possible overstatement of its reported net income.

UnitedHealth Group Inc.'s accruals over the last twelve months are around zero. However, this modestly negative level is also less than the peer median which suggests some amount of draining of reserves.

Trend Charts

Company Profile

UnitedHealth Group, Inc. provides health care coverage, software and data consultancy services. The company operates through four business segments: UnitedHealthcare, OptumHealth, OptumInsight and OptumRx. UnitedHealth Group was founded in January 1977 and is headquartered in Minnetonka, MN.

Disclaimer

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Source: Earnings Analysis: UnitedHealth Group