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Stock Analyst Update

Strong Quarter for UnitedHealth

Shares of the narrow-moat firm remain about fairly valued in our view.

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We expect to maintain our fair value estimate for UnitedHealth Group (UNH) after it delivered fourth-quarter results that were modestly above our expectations and maintained its outlook for 2020. Shares remain about fairly valued in our view. From a moat perspective, UnitedHealth appears advantaged in its diversified healthcare-related operations, including insurance, pharmacy benefit management, services, and analytics, and those advantages are reflected in its narrow moat rating.

For the fourth quarter, UnitedHealth delivered slightly higher operating results than expected even at its investor day in December, highlighted by momentum in its Medicare Advantage and Optum franchises, especially OptumRx and OptumHealth. In the quarter, the top line grew 4% with 4% growth in its insurance operations and 8% growth from Optum. Its earnings per share grew 19%, helped by margin expansion in both major businesses and share repurchases. 

With those strong fourth-quarter results, the company met its 2019 revenue goal of $242 billion (7% growth) and slightly beat its earnings per share goal of around $15.00 by delivering adjusted EPS of $15.11 (17% growth). The firm's strong 2019 results also included higher operating cash flow (18.5 billion) than we were expecting ($17.6 billion), but management stated those cash flows were inflated due a timing issue. Therefore, we do not expect to materially increase our cash flow expectations for future years, despite this performance.   

For 2020, the company reiterated its earnings per share goal of $16.25-$16.55, and while we may increase our estimates slightly after further reviewing its full annual results, we expect our EPS projection to remain within management's stated range. We also anticipate keeping our revenue for 2020 within its prior guidance of $260 billion-$262 billion, albeit on the high end of that range. In the long run, management still expects to increase adjusted earnings per share 13%-16% compounded annually. 

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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.

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