OT: Stock and Investment Talk
- Thread starter RU-05
- Start date
Sorry, not sure about this. It is highly likely that history will show inflation spike up quickly due to COVID and then go back to normal after the acute COVID crisis passed. It is very plausible that if the Fed raised to a neutral rate of 3%'ish, inflation would be coming down in the same way. However, we would have avoided bank failures and the Fed messing up the housing market by crushing available supply. Remember, the Fed had to "act tough" because they took so much crap for missing inflation in 2021.
As for the long-predicted recession, there will be no recession as long as 95%+ of people who want a job can get a job. And this is unlikely to change for years and years due to the working imbalance cause by COVID.
Oh I know. And my thing is teasing people about their things, being the douchebag I am. 🙂
And as an extension of Covid, as well as other geo political concerns, onshoring. But again, that is inflationary.
FS Insights has regionals as a tactical buy - KRE and then 5 specific banks. Hope you signed up for the free preview via The Compound. Big webinar at 2pm led by The Man (TL).
-Truflation is ticking up again.
-The base effect is going to be working against inflation again soon.
-Draining the SPR has kept oil low which has helped keep inflation down.
There is a good possibility we just hit bottom in the inflation data.
1. Truflation ticked up from 2.3% to 2.5%.....very minor bump which often happens in their data.
2. The base effect will work against Headline, but not Core. Core will continue to drop.
3. Sorry, your high inflation thesis is pretty much dead, especially as the lagging shelter data begins to correct and pulls headline and core down with it.
LOL. You never heard of truflation until i posted it.
I've been right for two years on inflation and you've been dead wrong.
LOL. You haven't been right on inflation for a long time. The data that proved you were right in 2021 prove you wrong right now. Can't have it both ways.
You have no idea who is right or wrong right now, and either do I. Only time will tell.
I called BS on transitory in 2021 and agreed on disinflation for the last year or so. Where did I have it both ways?
I don't see sticky inflation at this point as a bad thing. It's a sign the economy is humming along. And the higher the Fed goes with rates, that is that much more ammo they have to jumpstart the economy if it does ever hit a recession.
Fair enough, I will trust you on this.....don't have time to fact check past posts! :)
Either do I. Deflation would be a disaster for the US.
Generally speaking, I think we are going to continue to see inflation in things people need (like food) and deflation in things they don't need. The economy is still deleveraging so there is still a lot of risk out there. Especially oversees.
Oil price is the key.
OK, and to be fair you have been right on the equity market. I thought we would be more sideways/down.
I do think Oil is interesting to watch. Been stuck between high $60's and $80 for awhile. Breaking above $80 probably means the economy is strong, but it also keeps inflation as a concern.
As a bit of a tangent off that, and I mentioned this the other day, but the US is now producing more oil now then it did pre Covid, the most it has ever produced, doing so as OPEC+ is announcing cuts. That's a lot of money flowing into/staying in the US.
Also why OPEC+ cuts are having less of an impact on prices as expected.
Bought KSS.
Precovid EPS of $5, and had been consistently rising to that point.. Got crushed on the Covid dip, spiked to $7.50 per share post covid, and then crushed again. So it handled Covid poorly, but if it can get back to $5 EPS it's currently a 5xPE. If it can get half that EPS is 10xPE.
Recently went down to $18, but has bounced and just recently cleared a bit of a level at $23-24 ish.
Was as high as $35 earlier this year, and $60 post covid.
8% div.
Precovid EPS of $5, and had been consistently rising to that point.. Got crushed on the Covid dip, spiked to $7.50 per share post covid, and then crushed again. So it handled Covid poorly, but if it can get back to $5 EPS it's currently a 5xPE. If it can get half that EPS is 10xPE.
Recently went down to $18, but has bounced and just recently cleared a bit of a level at $23-24 ish.
Was as high as $35 earlier this year, and $60 post covid.
8% div.
Dovish Fed/rate environment due to inflation collapsing. TL and MN have been talking about this for a while.....for all materials and metals.
Not one for me. I like downtrodden stocks but not retail ones, if they're not named WMT, TGT, COST, HD and the like.
Psychologically, Kohl's I always wonder if it's on the brink of teetering whether that's true or not. I can't remember the last time I stepped into one.
It's bumping up against the 200DMA and some other resistance where it's been rejected prior.
Edit: The 200 day is the only moving average it is below. Not sure what that may or may not imply.
It was a buyout target last year I think up around $60, but mgmt said no thanks.
Not a good look for mgmt, but does speak to perceived value.
I'm already up .05%
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Most of HC looks bad, but as always, it will turn around sooner rather than later. Look for biotech to lead the way.
Understand. But when I'm coming up to a stop light I can still come off the brake a bit while keeping pressure on the pedal in case the light turns green on approach.
Nothing wrong with a second "pause".. and wait. Not suggesting to put foot on gas.
As expected. Good or bad for DIS? Probably good. Lots of chaos going on over there, so don't rush a long-term successor. We all saw the problems with an awful CEO via Chapek.
www.cnbc.com
Disney extends CEO Bob Iger's contract through 2026, two years longer than planned
Iger had previously told CNBC that he had no intention to stay longer than two years in the post after he returned in November.
I say it above but pausing and waiting had been my call for awhile but given the state of everything, the economy, inflation, the market, that doesn’t look to have been the right call.
To this point at least, the fed looks to have been right in remaining aggressive.
UNH falls to $451. 52 week low is $445 from last month. Earnings on the 14th.
Outstanding company, lots of growth potential over the next 3-5 years.
What’s your expectations in terms of stock price reaction to earnings? Is the sell off leading in a preclude to a bounce?
I'll look up some info on UNH. Made a big move today, converted my remaining TQQQ shares to QLD (the 2x QQQ). I'm totally out of TQQQ with almost exactly a 100% return. LOL! I now have QLD in my fun account and T Rowe Rollover IRA, so I still have plenty of QQQ skin in the game. Fun ride, but not recommended for everyone!
Morningstar on UNH (I think the fair market value is a little low, but good analysis of their business and growth targets):
UnitedHealth: Pent-Up Demand Returning to Providers Could Hurt Near-Term Medical Loss Ratios
Analyst Note | Updated Jun 14, 2023
At an investor conference, narrow-moat UnitedHealth made comments about surging demand for healthcare services in the second quarter that pushed down shares by a mid-single-digit percentage in after-hours trading, or even closer to our $462 fair value estimate. Management did not change its 2023 guidance though, and we suspect its Optum Health business may even benefit from increasing medical utilization, even as the medical insurance business feels pressure.
If this healthcare bellwether's experience represents an industrywide trend, demand for healthcare services and related supplies could be in the midst of an upswing, which could help the shares of service companies (like HCA and Tenet) and related suppliers (like Baxter and Fresenius SE), while managed care organizations may face margin pressure on medical loss ratio concerns. As a reminder, the pandemic was largely a boon for MCOs and a bust for medical service providers and related suppliers due to weak medical utilization and inflationary pressures, but UnitedHealth's comments suggest those trends may be reversing a bit, which could reverse the stock stories somewhat, as well.
Considering these trends, we have mildly pulled down our 2023 EPS estimate for UnitedHealth to the middle of management's existing outlook range of $24.50-$25.00 (10%-13% expected growth, or beneath its long-term goal of 13%-16% annual growth), but that slight adjustment did not materially change our fair value estimate, which is based on much-longer-term assumptions. Investors should realize though, that UnitedHealth and the other managed care providers may limp through the rest of 2023 into a tough 2024, as Medicaid redeterminations continue, regulatory scrutiny on pharmacy benefit managers increases, and Medicare Advantage growth looks set to decelerate. If MCO shares pull back significantly on these growing near-term headwinds, we think investors with a long-term horizon should recognize MCO share discounts as opportunities.
Business Strategy and Outlook
Under one roof, UnitedHealth combines a top-tier health insurer (UnitedHealthcare), pharmacy benefit manager (Optum Rx), provider (Optum Health), and health analytics franchise (Optum Insight). The company's integrated strategy has resulted in some of the best returns in the industry in recent years and has been copied at least in part by the late 2018 mergers at CVS Health (added Aetna's medical insurance assets to its existing retail stores and market-leading PBM) and Cigna (added Express Scripts PBM assets to its existing medical insurance operations). Outside of substantial regulator-led reforms, we think these vertically integrated organizations could help bend the healthcare cost curve in the United States, and UnitedHealth should be one of the key leaders of that charge.
UnitedHealth has demonstrated an uncanny ability to remain at the leading edge of changes affecting the industry. For example, its 2015 acquisition of Catamaran greatly increased its PBM scale and helped create a more holistic view of a patient's care. That combination of services has created attractive synergies for clients, such as employers or government programs, that are seeking to lower overall healthcare costs rather than just pharmacy or medical benefits. Adding service providers to the mix aligns incentives even further, especially since the firm's outpatient care assets offer significantly lower costs than hospital-based services. The firm's analytical tools help organizations pull various healthcare information related to its other operations together to provide an even fuller picture of a patient's health and care options.
By providing those diverse yet connected services, UnitedHealth aims to grow in nearly any regulatory environment. It is shooting for 13%-16% earnings growth in the long run including strong operational growth and capital allocation activities, such as acquisitions and repurchases. While some regulatory scenarios could eventually cut into that mission, we suspect the value that UnitedHealth provides to the U.S. healthcare system will help it remain relevant in the long run.
Economic Moat
Our narrow economic moat rating for UnitedHealth Group reflects our generally narrow-moat view of the U.S. health insurance and PBM industries and unclear outlook for economic profitability outside our 10-year explicit forecast period due to regulatory concerns. Still, as a top-tier U.S. health insurer, pharmacy benefit manager, service provider, and health analytics firm, UnitedHealth possesses enough scale-related cost advantages to generate economic profits for at least the next 10 years, in our view. Including goodwill, UnitedHealth’s returns currently are more than double its capital costs, and we project they will remain well above its capital costs throughout our explicit 10-year forecast period, which is the signature of a narrow-moat firm.
Our view is informed by an analysis of potential changes to the U.S. healthcare system, which are possible due to environmental, social, and governance concerns around access to basic healthcare services. Recently considered strategies to reach nearly universal, affordable health insurance coverage in the U.S. included the elimination of the private insurance industry in favor of a government-run program. However, at least during the next 10 years, we view scenarios where UnitedHealth provides medical and pharmaceutical benefits through employers and even government entities, such as Medicare Advantage and Medicaid managed-care plans, as much more likely than the extreme scenarios where the private insurance industry no longer exists. Overall, we suspect there will be a place for private health insurers and related pharmacy benefit managers, like UnitedHealth, to operate and generate economic profits in the U.S. healthcare system for a relatively long period of time.
We continue to see two primary moat sources at UnitedHealth: cost advantage and network effects. An insurer’s cost advantages relate primarily to scale, primarily on a local basis although the company operates nationwide. UnitedHealth claims a top tier spot in the U.S. health insurance market by premiums written and covered lives. Most importantly, UnitedHealth benefits from scale advantages in specific locations. For example in recent years, UnitedHealth has been positioned as either the largest or second-largest insurer in terms of premiums written in the majority of U.S. states. This sort of local scale advantage allows for much greater negotiating leverage versus healthcare suppliers than smaller insurers in each market, which adds to UnitedHealth’s cost advantage. When local scale advantages are significant enough, we think UnitedHealth’s insurance operations benefit from a network effect. According to the American Medical Association, the share of local insurance markets in the U.S. that were highly concentrated grew to 74% in 2019 from 71% in 2014, with the leaders likely taking share in those markets due to local market dynamics. For example, in communities where UnitedHealth already has substantial market share, it is able to offer lower costs or more benefits per member to existing and potential clients than its peers. If that offering is compelling enough, more employers will be attracted to UnitedHealth’s insurance plans in those communities, and local service providers, such as hospitals and physician groups, will have more incentive to join and offer lower prices to UnitedHealth’s insurance networks to gain access to its large, growing membership rolls. As UnitedHealth’s local market share rises, its negotiating leverage with healthcare suppliers particularly service providers also rises, which can create a virtuous cycle where UnitedHealth attracts even more clients and more providers to its insurance network. Overall, these dynamics create barriers to entry for would-be competitors, as compiling an attractively priced provider network in a new geography would be difficult without an established membership pool and vice versa.
We believe the firm’s Optum franchises layer in more cost and other advantages that add value to shareholders as well as end users of UnitedHealth Group’s services. Specifically, UnitedHealth’s pharmacy benefit manager, Optum Rx, appears competitively advantaged in its own right with cost advantages and switching costs present in this business. The PBM industry has consolidated into three top players—CVS, UnitedHealth, and Cigna—controlling nearly 80% of adjusted U.S. prescription volume. We believe UnitedHealth’s top-tier PBM assets should help it generate excess returns over time. We continue to view the fixed cost leverage associated with processing claims on about 1.4 billion of the roughly 6 billion adjusted prescriptions filled annually in the U.S. as a scale-related advantage. Additionally, this consolidation of purchasing power helps UnitedHealth extract discounts from drug manufacturers on one end of the transaction and pharmacies on the other end of the transaction, which helps create value for its clients such as insurance plans and employers. In addition to its cost-related advantages, we see some switching costs in this business, too, with contract lengths typically around three years and annual retention rates in the high 90s for all three of the top-tier PBM players. Switching the administrative activities, partner relationships, and pharmacy benefit plan specifications to a new PBM vendor can be time-consuming and onerous, which creates inertia for clients with limited realistic alternatives, in our opinion.
Optum Health's outpatient services segment—consisting primarily of primary care practices, urgent care facilities, and ambulatory surgical centers—helps UnitedHealth align incentives between its insurance and service operations, which can be especially powerful in the healthcare industry. Optum Health service providers allows the company to better manage the care of its members and encourage use of lower cost-of-care sites, which can result in significantly lower costs relative to an acute hospital setting when its insurance and Optum Health assets overlap. Overall, we view the Optum Health business as additive to the cost advantages of its insurance operations.
Through its health-related benefits and service businesses, UnitedHealth has amassed a wealth of data (intangible assets) that it has monetized through its Optum Insight business. The company’s analytical tools and services aim to improve care quality and improve efficiency in the healthcare system through a variety of solutions, including population health and risk analytics, consulting services to improve clinical performance and reduce administrative costs, and revenue cycle management tools. The company claims its solutions are used by 4 out of every 5 hospitals and 3 out of every 4 health insurance plans, highlighting the expansive reach of its influence. Also, while the smallest business from a revenue perspective ($12 billion in 2021 sales), its operating margins (28% in 2021) are the firm’s highest. We think this highly profitable business adds to the firm’s ability to generate ROICs over capital costs, especially as we expect it to continue growing at a faster pace than some of UnitedHealth’s other segments.
Fair Value and Profit Drivers
We are raising our fair value estimate to $462 per share from $426 on recent cash flows and strong trends. Our fair value estimate values UnitedHealth at 18 times 2023 expected earnings.
Through 2027, we assume revenue grows 8%, net income grows 9%, and adjusted earnings per share grows 12% compounded annually, or slightly below management's long-term goal of 13%-16%. Management's goal includes capital allocation activities like share repurchases and acquisitions. While we include share repurchases in our estimates, we do not include unannounced acquisitions, so that may be one reason why we are slightly below that range.
By business segment, we expect UnitedHealthcare's insurance operations to grow about 7% compounded annually during the next five years. In the U.S., we think Medicare-related plans will likely lead the way, growth-wise, due to demographic trends and the growing popularity of Medicare Advantage plans. With redetermination activities resuming, UnitedHealth's Medicaid operations may be a laggard during the next five years. In the Optum businesses, we expect total growth of 11% compounded annually during the next five years. Organically, by division, we expect midteens organic growth from Optum Health, midteens growth from Optum Insight, and mid-single-digit growth from Optum Rx during the five years.
We expect earnings to grow at a faster pace than revenue due to margin expansion and share repurchases. From an operating margin perspective, we expect UnitedHealth to be able to increase profitability slightly through the next five years through cost control efforts and relatively high growth in higher-margin businesses, such as Optum Insight and Optum Health, which should help offset the margin pressure associated with the lower-margin, but fast-growing, Medicare Advantage business. We also assume the company uses much of its excess cash flows to repurchase shares, which contributes to our 12% expected earnings-growth rate during the next five years.
UnitedHealth: Pent-Up Demand Returning to Providers Could Hurt Near-Term Medical Loss Ratios
Analyst Note | Updated Jun 14, 2023
At an investor conference, narrow-moat UnitedHealth made comments about surging demand for healthcare services in the second quarter that pushed down shares by a mid-single-digit percentage in after-hours trading, or even closer to our $462 fair value estimate. Management did not change its 2023 guidance though, and we suspect its Optum Health business may even benefit from increasing medical utilization, even as the medical insurance business feels pressure.
If this healthcare bellwether's experience represents an industrywide trend, demand for healthcare services and related supplies could be in the midst of an upswing, which could help the shares of service companies (like HCA and Tenet) and related suppliers (like Baxter and Fresenius SE), while managed care organizations may face margin pressure on medical loss ratio concerns. As a reminder, the pandemic was largely a boon for MCOs and a bust for medical service providers and related suppliers due to weak medical utilization and inflationary pressures, but UnitedHealth's comments suggest those trends may be reversing a bit, which could reverse the stock stories somewhat, as well.
Considering these trends, we have mildly pulled down our 2023 EPS estimate for UnitedHealth to the middle of management's existing outlook range of $24.50-$25.00 (10%-13% expected growth, or beneath its long-term goal of 13%-16% annual growth), but that slight adjustment did not materially change our fair value estimate, which is based on much-longer-term assumptions. Investors should realize though, that UnitedHealth and the other managed care providers may limp through the rest of 2023 into a tough 2024, as Medicaid redeterminations continue, regulatory scrutiny on pharmacy benefit managers increases, and Medicare Advantage growth looks set to decelerate. If MCO shares pull back significantly on these growing near-term headwinds, we think investors with a long-term horizon should recognize MCO share discounts as opportunities.
Business Strategy and Outlook
Under one roof, UnitedHealth combines a top-tier health insurer (UnitedHealthcare), pharmacy benefit manager (Optum Rx), provider (Optum Health), and health analytics franchise (Optum Insight). The company's integrated strategy has resulted in some of the best returns in the industry in recent years and has been copied at least in part by the late 2018 mergers at CVS Health (added Aetna's medical insurance assets to its existing retail stores and market-leading PBM) and Cigna (added Express Scripts PBM assets to its existing medical insurance operations). Outside of substantial regulator-led reforms, we think these vertically integrated organizations could help bend the healthcare cost curve in the United States, and UnitedHealth should be one of the key leaders of that charge.
UnitedHealth has demonstrated an uncanny ability to remain at the leading edge of changes affecting the industry. For example, its 2015 acquisition of Catamaran greatly increased its PBM scale and helped create a more holistic view of a patient's care. That combination of services has created attractive synergies for clients, such as employers or government programs, that are seeking to lower overall healthcare costs rather than just pharmacy or medical benefits. Adding service providers to the mix aligns incentives even further, especially since the firm's outpatient care assets offer significantly lower costs than hospital-based services. The firm's analytical tools help organizations pull various healthcare information related to its other operations together to provide an even fuller picture of a patient's health and care options.
By providing those diverse yet connected services, UnitedHealth aims to grow in nearly any regulatory environment. It is shooting for 13%-16% earnings growth in the long run including strong operational growth and capital allocation activities, such as acquisitions and repurchases. While some regulatory scenarios could eventually cut into that mission, we suspect the value that UnitedHealth provides to the U.S. healthcare system will help it remain relevant in the long run.
Economic Moat
Our narrow economic moat rating for UnitedHealth Group reflects our generally narrow-moat view of the U.S. health insurance and PBM industries and unclear outlook for economic profitability outside our 10-year explicit forecast period due to regulatory concerns. Still, as a top-tier U.S. health insurer, pharmacy benefit manager, service provider, and health analytics firm, UnitedHealth possesses enough scale-related cost advantages to generate economic profits for at least the next 10 years, in our view. Including goodwill, UnitedHealth’s returns currently are more than double its capital costs, and we project they will remain well above its capital costs throughout our explicit 10-year forecast period, which is the signature of a narrow-moat firm.
Our view is informed by an analysis of potential changes to the U.S. healthcare system, which are possible due to environmental, social, and governance concerns around access to basic healthcare services. Recently considered strategies to reach nearly universal, affordable health insurance coverage in the U.S. included the elimination of the private insurance industry in favor of a government-run program. However, at least during the next 10 years, we view scenarios where UnitedHealth provides medical and pharmaceutical benefits through employers and even government entities, such as Medicare Advantage and Medicaid managed-care plans, as much more likely than the extreme scenarios where the private insurance industry no longer exists. Overall, we suspect there will be a place for private health insurers and related pharmacy benefit managers, like UnitedHealth, to operate and generate economic profits in the U.S. healthcare system for a relatively long period of time.
We continue to see two primary moat sources at UnitedHealth: cost advantage and network effects. An insurer’s cost advantages relate primarily to scale, primarily on a local basis although the company operates nationwide. UnitedHealth claims a top tier spot in the U.S. health insurance market by premiums written and covered lives. Most importantly, UnitedHealth benefits from scale advantages in specific locations. For example in recent years, UnitedHealth has been positioned as either the largest or second-largest insurer in terms of premiums written in the majority of U.S. states. This sort of local scale advantage allows for much greater negotiating leverage versus healthcare suppliers than smaller insurers in each market, which adds to UnitedHealth’s cost advantage. When local scale advantages are significant enough, we think UnitedHealth’s insurance operations benefit from a network effect. According to the American Medical Association, the share of local insurance markets in the U.S. that were highly concentrated grew to 74% in 2019 from 71% in 2014, with the leaders likely taking share in those markets due to local market dynamics. For example, in communities where UnitedHealth already has substantial market share, it is able to offer lower costs or more benefits per member to existing and potential clients than its peers. If that offering is compelling enough, more employers will be attracted to UnitedHealth’s insurance plans in those communities, and local service providers, such as hospitals and physician groups, will have more incentive to join and offer lower prices to UnitedHealth’s insurance networks to gain access to its large, growing membership rolls. As UnitedHealth’s local market share rises, its negotiating leverage with healthcare suppliers particularly service providers also rises, which can create a virtuous cycle where UnitedHealth attracts even more clients and more providers to its insurance network. Overall, these dynamics create barriers to entry for would-be competitors, as compiling an attractively priced provider network in a new geography would be difficult without an established membership pool and vice versa.
We believe the firm’s Optum franchises layer in more cost and other advantages that add value to shareholders as well as end users of UnitedHealth Group’s services. Specifically, UnitedHealth’s pharmacy benefit manager, Optum Rx, appears competitively advantaged in its own right with cost advantages and switching costs present in this business. The PBM industry has consolidated into three top players—CVS, UnitedHealth, and Cigna—controlling nearly 80% of adjusted U.S. prescription volume. We believe UnitedHealth’s top-tier PBM assets should help it generate excess returns over time. We continue to view the fixed cost leverage associated with processing claims on about 1.4 billion of the roughly 6 billion adjusted prescriptions filled annually in the U.S. as a scale-related advantage. Additionally, this consolidation of purchasing power helps UnitedHealth extract discounts from drug manufacturers on one end of the transaction and pharmacies on the other end of the transaction, which helps create value for its clients such as insurance plans and employers. In addition to its cost-related advantages, we see some switching costs in this business, too, with contract lengths typically around three years and annual retention rates in the high 90s for all three of the top-tier PBM players. Switching the administrative activities, partner relationships, and pharmacy benefit plan specifications to a new PBM vendor can be time-consuming and onerous, which creates inertia for clients with limited realistic alternatives, in our opinion.
Optum Health's outpatient services segment—consisting primarily of primary care practices, urgent care facilities, and ambulatory surgical centers—helps UnitedHealth align incentives between its insurance and service operations, which can be especially powerful in the healthcare industry. Optum Health service providers allows the company to better manage the care of its members and encourage use of lower cost-of-care sites, which can result in significantly lower costs relative to an acute hospital setting when its insurance and Optum Health assets overlap. Overall, we view the Optum Health business as additive to the cost advantages of its insurance operations.
Through its health-related benefits and service businesses, UnitedHealth has amassed a wealth of data (intangible assets) that it has monetized through its Optum Insight business. The company’s analytical tools and services aim to improve care quality and improve efficiency in the healthcare system through a variety of solutions, including population health and risk analytics, consulting services to improve clinical performance and reduce administrative costs, and revenue cycle management tools. The company claims its solutions are used by 4 out of every 5 hospitals and 3 out of every 4 health insurance plans, highlighting the expansive reach of its influence. Also, while the smallest business from a revenue perspective ($12 billion in 2021 sales), its operating margins (28% in 2021) are the firm’s highest. We think this highly profitable business adds to the firm’s ability to generate ROICs over capital costs, especially as we expect it to continue growing at a faster pace than some of UnitedHealth’s other segments.
Fair Value and Profit Drivers
We are raising our fair value estimate to $462 per share from $426 on recent cash flows and strong trends. Our fair value estimate values UnitedHealth at 18 times 2023 expected earnings.
Through 2027, we assume revenue grows 8%, net income grows 9%, and adjusted earnings per share grows 12% compounded annually, or slightly below management's long-term goal of 13%-16%. Management's goal includes capital allocation activities like share repurchases and acquisitions. While we include share repurchases in our estimates, we do not include unannounced acquisitions, so that may be one reason why we are slightly below that range.
By business segment, we expect UnitedHealthcare's insurance operations to grow about 7% compounded annually during the next five years. In the U.S., we think Medicare-related plans will likely lead the way, growth-wise, due to demographic trends and the growing popularity of Medicare Advantage plans. With redetermination activities resuming, UnitedHealth's Medicaid operations may be a laggard during the next five years. In the Optum businesses, we expect total growth of 11% compounded annually during the next five years. Organically, by division, we expect midteens organic growth from Optum Health, midteens growth from Optum Insight, and mid-single-digit growth from Optum Rx during the five years.
We expect earnings to grow at a faster pace than revenue due to margin expansion and share repurchases. From an operating margin perspective, we expect UnitedHealth to be able to increase profitability slightly through the next five years through cost control efforts and relatively high growth in higher-margin businesses, such as Optum Insight and Optum Health, which should help offset the margin pressure associated with the lower-margin, but fast-growing, Medicare Advantage business. We also assume the company uses much of its excess cash flows to repurchase shares, which contributes to our 12% expected earnings-growth rate during the next five years.
I don't really play a stock ahead of earnings and since I'm always coming from the long side it would be with an expectation of a pop. I'm usually hesitant to step into the breach though lol, if I ever do make a move ahead of earnings, it's a sale to protect gains.
For UNH, I think it's possible for relief pop after earnings and it does have some support in this 440-450s area but I'd find it more attractive if it were to drop in the low 400s high 300s area. Personally, I'm hoping for a bigger drop after earnings. I think the higher costs might last somewhat longer but we'll see.
Personally, I would find UNH even more attractive in the high 200s area, but a hope and wish means nothing. :)
That's not likely a realistic target, the high 300s low 400s is definitely a realistic target. I remember you questioning me and laughing at the idea when I said AMZN could go to 2000 (not that it would but that it could) when it was in the upper 2000s low 3000s and it ended up going there.
It doesn't mean it will happen but my target of where I'd like it isn't far fetched.
Any stock "could" go to zero, so predicting bear market sized drops (20-30%) isn't that big of a deal. On the other hand, I said tech/QQQ/SOXX could quickly rally back to near highs and almost everyone laughed (likely including you). So there we are.....cherry picking our good calls. LOL!
Seriously, I have learned a lot from your posts. Technicals are still completely BS, but as long as enough people believe TA works, it will to some extent. I respect that now.
I didn’t laugh at anything because I don’t laugh at anyone’s posts, including yours. I don’t respond to posts I have no interest in and can go for long periods of not even looking at this thread when too many names I don’t have an interest in get mentioned.
I didn’t think the tech rally would be as strong and hard as it was but it’s fine for me because I was accumulating big tech at the prices i mentioned. That’s what I’d do with UNH too provided it gets to levels I think are attractive. 25% off its high isn’t far fetched.
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