UnitedHealth's Momentum Continues; Shares Still Rich

UnitedHealth's (UNH) strong results continued in the first quarter of 2022, as the firm delivered bottom-line results that were slightly higher than FactSet consensus and increased its 2022 guidance a bit. Our estimates for 2022 will likely remain within management's new targeted range, but we may increase our fair value estimate by about 5% primarily to account for cash flows generated since our last valuation change. Even after this change, the group's shares will likely still appear rich to us, especially relative to the company's MCO peers that have similar growth prospects but trade at lower multiples. Like its peers, UnitedHealth's economic moat remains narrow, which recognizes the long-term policy risks that the company faces despite its strongholds in medical insurance, pharmacy benefits, caregiving services, and analytical tools.

In the quarter, UnitedHealth delivered strong top- and bottom-line results. Revenue grew 14% to $80 billion with low-double-digit growth from its medical insurance and high-teens growth from its Optum businesses. In medical insurance, total medical membership grew 3% year over year with government-sponsored plans (8% growth) offsetting continued weakness in employer-sponsored plans (flat). The Optum franchises were led by OptumHealth (34% revenue growth), as its local physician network grew and those providers continued to transition to value-based arrangements, which continues to boost revenue per member significantly on just low-single digit consumer growth. OptumInsight (13% revenue growth) and OptumRx (11% revenue growth) performed solidly, too. Compared with a tough comparable period related to COVID trends, UnitedHealth's adjusted EPS grew 3% to $5.49 this quarter, or better than FactSet consensus ($5.36.) With that mild outperformance, management increased its 2022 outlook by a similar rate ($0.10) to between $21.20 and $21.70 per share, and our adjusted EPS estimate for this year will likely remain within that range.