A key attraction of UnitedHealth is that its businesses can be part of the solution to bringing down healthcare costs. Its Optum Health division is playing a big part in the roll-out of value-based care programmes in the US. This is where healthcare providers are paid based on performance, quality and cost savings, rather than simply on quantity of services provided.
Optum believes this will not only reduce healthcare costs for its own business but also for rivals.
Other healthcare cost savings can come from Optum’s data and technology business which helps its healthcare customers become more efficient, including allowing patients to access lower cost drugs.
Despite the cyber attack hit, the underlying profitability is better than analysts had expected with the company maintaining its profit guidance for 2024 a few weeks’ ago.
Looking further out, top investors like Kaufman are confident UnitedHealth can continue to grow earnings per share (EPS) by 13 to 16pc over the medium term given the strong fundamentals.
About a quarter of EPS growth is expected to come from earnings being divvied up between fewer shares thanks to ongoing share buybacks. With returns on shareholders’ equity of 20pc or more, the company throws off lots of surplus cash to fund these purchases.
Before recent problems, the high quality of UnitedHealth’s businesses and its impressive track meant the shares traded comfortably above 20 times forecast EPS. The current valuation of 18 times forecasts looks a good long-term buying opportunity.
Questor says: buy
Ticker: NYSE:UNH
Share price: $524.63
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