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UnitedHealth Needs A Check-Up Concerning FCF


  • UNH has produced lower FCF margins over the past few years despite massive revenue growth.
  • It is also in the midst of tremendous dividend growth, which is consuming a higher and higher proportion of FCF each year.
  • The buyback has suffered due to lower levels of available FCF.

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UnitedHealth (NYSE:UNH) has been one of the best growth stories in the mega-cap space for years now. The company’s ability to continue to rapidly grow revenue and profits has been staggering and the stock price reflects all of that good news today, seemingly constantly reaching new highs. UNH is also a company that returns a lot of money to shareholders including the very successful buyback program as well as its rapidly growing dividend. These things are key for shareholders for different reasons but both contribute to the total return of the stock in excess of earnings growth that drives stock price appreciation. In this article, I’ll take a look at UNH’s ability to support these capital returns with FCF as well as any implications it has on the stock going forward.

I’ll be using data from Seeking Alpha for this exercise.

We’ll begin by taking a look at UNH’s revenue and FCF for the past five years to get an idea of where it has come from.

UNH’s growth in revenue and FCF have been huge in the past five years. Revenue has risen from $111B five years ago to $185B last year, making UNH one of the biggest companies our market has to offer as measured by revenue. That amounts to a two-thirds increase in just five years and that surely is a terrific start to the FCF discussion, particularly considering the scale of UNH and the fact that it has been able to see that sort of expansion in such a short period of time.

In addition, the FCF bars show some growth but to be fair, that growth isn’t nearly on the same level as revenue. FCF was $6.1B in 2012 and $8.1B last year, representing growth of one-third, or half the rate of revenue growth. While growing FCF is terrific and very

This article was written by

Josh Arnold profile picture
Josh Arnold has been covering financial markets for a decade, utilizing a combination of technical and fundamental analysis to identify potential winners early on in their growth cycles. Josh's focus is mainly on growth stocks. His goal is efficient and profitable use of capital, which overly rigid buy-and-hold strategies do not allow. Josh is the leader of the investing group Learn more.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (4)

Your forgetting all the FCF they've spent in acquisitions. I want to see them continue to make investments in optum and possibly take a stab at taking over Express Scripts (if can pass antitrust).
Hardog profile picture
copy that .
Long UNH
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