Key Takeaways:
- UnitedHealth Group has delivered market-beating 16% annualized returns over the past decade, making it a proven long-term compounder.
- UNH stock trades at just 17x forward earnings, well below its 5-year average P/E of 20x.
- Analysts project 10% annual revenue and earnings growth over the next three years, with price targets suggesting over 20% upside.
- The stock could deliver approximately 28% total return (13% annualized) over the next two years based on future earnings projections.
In a market where quality stocks with consistent growth are increasingly hard to find at reasonable valuations, UnitedHealth (UNH) Group stands out as a potential opportunity for long-term investors.
Here’s a detailed look at why UnitedHealth could be one of the best stocks to buy for the long term today.
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UnitedHealth Group: A Healthcare Powerhouse
UnitedHealth Group provides health insurance coverage for millions of Americans and has attracted institutional investment, with many large hedge funds increasing their positions last quarter.
The company has established itself as a genuine compounder, delivering market-beating returns of 16.2% annually over the past decade, not including the regular dividends the stock paid along the way.
Why UnitedHealth has strong competitive advantages:
- The company benefits from massive scale, because the company serves a sizeable portion of the U.S. healthcare market.
- Its Optum division provides technology and pharmacy benefits management services, creating diversified revenue streams beyond traditional insurance.
- High switching costs and network effects create substantial barriers to entry for competitors.
Growth Outlook Remains Strong
Analysts expect UnitedHealth’s revenue and earnings to grow around 10% annually over the next three years, consistent with the company’s performance over the past five years.
This steady growth trajectory is impressive given that UnitedHealth is already among the largest financial services companies globally. Moreover, it demonstrates an ability to continue expanding in the mature but recession-resistant healthcare market.
Key growth drivers include:
- The aging U.S. population is creating increased demand for healthcare services
- Expansion of the Optum health services business
- Potential for continued strategic acquisitions
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Valuation Analysis Points to Significant Upside
Looking at UnitedHealth’s valuation, the stock has historically traded at a 20x forward P/E multiple over the past five years. Today, it trades at just over 17 times earnings, which represents a meaningful discount to its historical average.
Here’s why UNH stock looks undervalued:
Analysts estimate that UnitedHealth will earn approximately $38 per share in three years from now. At a 17x P/E multiple (which is conservative compared to its historical average), the stock could be worth $646 per share in two years.
When you add the $19/share in expected dividend payments that UnitedHealth is expected to pay over the next two years, this brings the stock’s total fair value to approximately $665 per share.
From current price levels of $518, this implies a total return of about 28% or a 13% annual return over the next two years. This outpaces the stock market’s long-term average annual return of 10%.
The outlook aligns with analyst sentiment. The average price target for UnitedHealth is $628 per share, which suggests the stock has an upside of about 21% from the stock’s current share price.
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TIKR Takeaway
UnitedHealth Group represents a compelling opportunity for investors seeking a high-quality business with consistent growth at a reasonable valuation.
The TIKR Terminal offers industry-leading financial data on over 100,000 stocks and was built for investors who think of buying stocks as buying a piece of a business.
Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
