UnitedHealth Group: Cyberattack Is Manageable, Initiate With A 'Strong Buy'

Core Viewpoint - UnitedHealth is the world's largest health insurance company, pursuing a unique M&A strategy to consolidate the healthcare benefit market and expand its data analytics business, with a 'Strong Buy' rating and a one-year target price of 700 per share [1][11] M&A Strategy and Market Position - Over the past three years, UnitedHealth has spent more than 36 billion on acquisitions, including the $13 billion acquisition of Change Healthcare, which enhanced its competitive advantage and boosted Optum Insight revenue by nearly 30$33 billion, growing by 3% year-over-year, driven by business process and IT services for health systems [2] - The $5.4 billion acquisition of LHC Group in February 2023 allows UnitedHealth to expand its home and community-based care services [2] Cyberattack Impact - A major cyberattack in February led to a shutdown of systems for over a week, with a ransom payment of$22 million made to the hacker [3] - The incident is expected to reduce overall EPS for FY24 by $1.90 to$2.05, with additional financial costs anticipated from penalties and increased capital expenditure for IT upgrades [3][4] - The company has provided over $9 billion in advance funding and loans to affected care providers [3] Financial Performance and Growth Outlook - UnitedHealth reported a 6.4$1.28, but the decision is viewed favorably due to exposure to FX risk [6] - The U.S. healthcare spending is projected to grow by 7.5% in 2023, providing a solid foundation for UnitedHealth's growth [6][7] - The company is expected to deliver 6% organic revenue growth, with acquisitions contributing an additional 2% to topline growth [7] DCF Valuation - UnitedHealth is estimated to deliver 8% revenue growth in the near future, with operating margins expected to expand by 10 basis points annually [8] - The calculated cost of equity is 9.4%, leading to a one-year target price of $700 per share based on discounted cash flow analysis [9]