As part of a new series, each week we typically conduct a DCF on one of the companies in our screens. This week we thought we’d take a look at one of the stocks that are not currently in our screens, UnitedHealth Group Inc (UNH).
Profile
UnitedHealth Group is one of the largest private health insurers, providing medical benefits to about 53 million members globally, including 5 million outside the U.S. as of mid-2023. As a leader in employer-sponsored, self-directed, and government-backed insurance plans, UnitedHealth has obtained massive scale in managed care. Along with its insurance assets, UnitedHealth’s continued investments in its Optum franchises have created a healthcare services colossus that spans everything from medical and pharmaceutical benefits to providing outpatient care and analytics to both affiliated and third-party customers.
Recent Performance
Over the past twelve months the share price is up 11.02%.
Inputs
- Discount Rate: 6%
- Terminal Growth Rate: 2%
- WACC: 6%
Forecasted Free Cash Flows (FCFs)
| Year | FCF (billions) | PV(billions) |
| 2024 | 24.6 | 23.21 |
| 2025 | 27 | 24.03 |
| 2026 | 29.6 | 24.85 |
| 2027 | 32.4 | 25.66 |
| 2028 | 35.4 | 26.45 |
Terminal Value
Terminal Value = FCF * (1 + g) / (r – g) = 902.70 billion
Present Value of Terminal Value
PV of Terminal Value = Terminal Value / (1 + WACC)^5 = 674.55 billion
Present Value of Free Cash Flows
Present Value of FCFs = ∑ (FCF / (1 + r)^n) = 124.21 billion
Enterprise Value
Enterprise Value = Present Value of FCFs + Present Value of Terminal Value = 798.76 billion
Net Debt
Net Debt = Total Debt – Total Cash = 34.26 billion
Equity Value
Equity Value = Enterprise Value – Net Debt = 764.50 billion
Per-Share DCF Value
Per-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $826.48
Conclusion
| DCF Value | Current Price | Margin of Safety |
|---|---|---|
| $826.48 | $539.54 | 34.72% |
Based on the DCF valuation, the stock is undervalued. The DCF value of $826.48 per share is higher than the current market price of $539.54. The Margin of Safety is 34.72%.
It is important to note that this valuation is based on a number of assumptions, and these assumptions could change in the future. This valuation is meant to be a back-of-the-envelope analyse that could be used as a starting point in a much more thorough valuation process. As a result, it is important to do your own research before making any investment decision.
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5 Comments on “The UnitedHealth Group Inc (UNH) DCF Valuation: Is The Stock Undervalued?”
The terminal value what values did you use. I tried to calculate it for visa did not come out correct.
2028 FCF * (1+ 2%) / (6% – 2%)
Spot on Kevin. Thanks.
On the balance sheet for the company, I see Net Debt on the line item.
Do you know where they got the total debt and total cash from the balance sheet to put into the equation?
Net Debt = Total Debt – Total Cash = 34.26 billion
UNH Latest Annual Report shows – ST Debt of $3.11B and LT Debt of $54.51B = $57.62B. Cash and cash equivalents $23.36B.
Net Debt = $57.62 – $23.36B = $34.26B.