What's Behind The 80% Rise In UnitedHealth Stock?

Core Viewpoint - UnitedHealth Group has experienced significant stock price appreciation and revenue growth, driven primarily by its Optum segment, but faces challenges from rising medical costs and market performance compared to the S&P 500 [1][4][5]. Financial Performance - UnitedHealth stock has increased by 80% since January 2021, rising from $335 to approximately$600, while the S&P 500 rose about 45% during the same period [1]. - The company's revenue grew by 48%, from $257 billion in 2020 to$381 billion currently, with a P/S ratio increase of 18% to 1.4x [1]. - Revenue has risen at an average annual growth rate of 13% from $257 billion in 2020 to$367 billion in 2023, with OptumHealth's revenue growing by 67% in the same timeframe [4]. Segment Analysis - The Optum segment has been a key driver of growth, attributed to increased demand for healthcare services and value-based arrangements [4]. - UnitedHealth's insurance business has faced challenges due to rising medical costs, leading to an increase in the medical care ratio from 82% in 2022 to 84.7% in mid-2024 [5]. Valuation and Earnings - The current valuation of UnitedHealth stock is estimated at $580 per share, based on a 21x P/E multiple and expected earnings of$27.55 per share for 2024 [3]. - The operating margin has contracted from 8.2% in 2020 to 7.3% recently, influenced by rising medical costs and a cyberattack [6]. - Earnings per share increased from $16.03 in 2020 to$23.86 in 2023, with expectations for 2024 earnings in the range of $27.50 to$28.00 [6]. Market Position and Outlook - Despite consistent value growth over the past three years, UnitedHealth has underperformed the S&P 500 in 2023, with returns of only 1% compared to the S&P's 24% [2]. - The company is projected to deliver mid-single-digit average annual top-line growth over the next three years, but higher medical costs pose a near-term risk [7].