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Stock Analyst Update

UnitedHealth Maintains Earnings Guidance for 2021

We do not plan on changing our moat rating or fair value estimate for the company.


Narrow-moat UnitedHealth (UNH) released its operating results for 2020 that beat our expectations slightly in terms of adjusted EPS and significantly in terms of cash flow due to timing issues. However, the firm maintained its guidance for 2021 that was given at its December investor day. While there appears to be further upside in those 2021 earnings goals if COVID-related constraints are more modest that currently anticipated, we expect to keep our near-term expectations and recently raised $329 fair value estimate roughly intact for now.

In 2020, the company beat our expectations and its own recently raised guidance for the year, turning in $257 billion in revenue for the year (in line with expectations) and adjusted earnings per share of $16.88 (higher than its previous guidance of $16.50-$16.75). That mild outperformance on the bottom line does not change UnitedHealth's fair value. We would note, though, that the firm's cash flows were stronger in 2020 than we anticipated, with free cash flow coming in at $20 billion for the year (versus our $17 billion expectation). Management highlighted that early customer receipts led to that outperformance. At its analyst day, the company guided to $20 billion-$21 billion of operating cash flow in 2021 (which could lead to free cash flow of around $19 billion), but it did not back that guidance during this call, suggesting that the better-than-expected cash flows in 2020 may reverse in 2021, as timing issues normalize. Therefore, we may trim our expected 2021 free cash flow assumption moderately.

For 2021, the company maintained its adjusted EPS guidance but continued to highlight potential constraints of $1.80 based on the COVID-related health and economic effects.  So while our estimate for adjusted EPS will likely remain within the company's target range for 2021 ($17.75-$18.25), we recognize that there may be upside potential if those effects are not as severe as currently expected.

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Julie Utterback does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.