This UNH Stock Forecast article was written by Levi Fu – Financial Analyst at I Know First.

Highlights

• UNH’s revenue reached $372 billion in 2023, with a 10% CAGR from 2018 to 2023.
• Optum’s integration with UnitedHealthcare provides a significant competitive advantage, driving cost efficiency and profitability.
• Technical analysis (Wyckoff method) estimates the stock a conservative price target of $610 within 3-month timeframe, representing a 4.4% upside from the current price of $584.

Overview

UnitedHealth Group (UNH) is the largest healthcare management company in the U.S., offering a comprehensive suite of healthcare products and services. These include traditional risk-based health insurance plans, administration of non-risk plans, pharmacy benefit management, and healthcare delivery and optimization. The company operates through two primary business segments: UnitedHealthcare, which concentrates on health insurance plans, and Optum, which specializes in healthcare delivery, services, and optimization.

UNH Stock Forecast: UnitedHealthcare Segment Performance

UNH Stock Forecast: In 2023, the UnitedHealthcare (United) segment of UNH generated 55% of the company’s total revenue (before eliminations) and contributed 51% of pre-tax operating profit by providing health plans to approximately 53 million individuals. United’s primary value proposition lies in arranging cost-effective access to health services through its extensive provider networks.

Risk-Based vs. Fee-Based Health Plans

Understanding the distinction between risk-based and fee-based health plans is crucial to appreciating United’s operations. Under risk-based plans, customers pay United fixed insurance premiums, and in return, United pays healthcare providers at negotiated rates for the medical care received by plan members. United retains the risk of customers’ covered medical costs exceeding the premium amounts, but it also benefits from the resulting profits when these costs are below expectations. This model can lead to fluctuations in profitability if medical costs exceed projections.

Conversely, under fee-based health plans, customers—typically large employers or government agencies—pay United for access to and administration of health benefits through its networks, but they self-fund the medical costs negotiated by UNH on their behalf. Consequently, UNH does not bear the risk of medical costs exceeding expectations in these plans.

UnitedHealthcare is organized into three key business units:

• Employer Individual: This unit offers both risk-based and fee-based health plans and generated 27% of United’s total revenue in 2023.
• Medicare Retirement: Specializing in risk-based Medicare Advantage and Medicare Supplement plans for seniors, this unit contributed 46% of United’s total revenue.
• Community State: Primarily managing Medicaid programs for state governments, this unit accounted for 27% of United’s total revenue in 2023.

Optum Segment Overview

The Optum segment generated 45% of UNH’s total revenue (before eliminations) and 49% of pre-tax operating profit in 2023. Optum serves as the healthcare provider, services, and information technology arm of UNH. Its largest customer group consists of healthcare payers seeking to enhance their top lines or deliver improved, cost-effective healthcare to their insured populations.

Optum’s Key Business Units

• OptumRx: The largest business within Optum, OptumRx, is a pharmacy benefit manager (PBM) that generated 51% of Optum’s total revenue in 2023. It negotiates prescription drug prices on behalf of healthcare customers. The scale of OptumRx is a significant competitive advantage, as drug makers typically offer price concessions to PBMs with large customer bases, which purchase substantial volumes of pharmaceuticals. These lower drug prices increase OptumRx’s competitiveness in securing business from insurers or providers.
• OptumHealth: This business unit generated 41% of Optum’s 2023 revenue by providing healthcare services to patients through its expansive networks of outpatient facilities.
• OptumInsight: A healthcare technology and data analytics business, OptumInsight contributed 8% of Optum’s 2023 revenue by enhancing efficiency for a wide array of customers, including providers and payers.

UNH Stock Forecast: Optum overall financial trends for the past 5 years

Revenue for UNH grew to approximately $372 billion in 2023, reflecting a five-year compound annual growth rate (CAGR) of around 10% from 2018 to 2023. During this period, the pre-tax operating margin from 7.7% in 2018 to 8.7% in 2023. Earnings per share (EPS) also showed robust growth, with a CAGR of approximately 14% from 2018 to 2023.

Optum has been the primary driver of UNH’s growth, historically generating higher operating margins than UnitedHealthcare, typically within the 7%-8% range. In 2023, Optum’s operating margin was 7.0%, slightly down from 7.7% in 2022. On the other hand, UnitedHealthcare’s operating margin generally falls within the 5%-6% range and remained steady at 5.8% in both 2023 and 2022.

From the investors’ perspective, UNH has consistently returned significant cash to shareholders thanks to the driving force from Optum. In 2023, UNH paid out dividends totaling approximately $6.8 billion, compared to $6.0 billion in 2022, and conducted net share repurchases worth $8.0 billion, up from $7.0 billion in 2022.

The Synergy with Optum becomes a competitive advantage

UNH’s unique position as the largest health plan provider in the nation, combined with its substantial healthcare services through Optum, creates a significant competitive advantage over other firms. The synergy between UnitedHealthcare and Optum results in lower operational costs, a key strength for UNH. UnitedHealthcare benefits from a leading medical cost ratio among health plan providers, largely due to its close collaboration with Optum, which helps to minimize both medical and operating expenses.

• OptumRx: By negotiating favorable drug prices, OptumRx plays a critical role in reducing costs for UnitedHealthcare, allowing it to offer more competitive premiums compared to other health plans.
• OptumHealth: The use of OptumHealth providers, who offer services at lower costs than many third-party providers, contributes to the overall cost efficiency of UnitedHealthcare.
• OptumInsight: With its advanced data analytics capabilities, OptumInsight drives down costs in healthcare delivery, making UnitedHealthcare more competitive in bidding for health plan business due to its ability to offer lower premiums while maintaining profitability.

Apart from UNH, Optum also derives significant benefits from having UnitedHealthcare and its large membership base as an in-house customer. The extensive patient population managed by UnitedHealthcare provides Optum with substantial negotiating power in the healthcare market. This offer Optum strong negotiating power as drug manufacturers and healthcare providers are highly motivated to maintain their relationships with Optum due to the sheer volume of business generated by UnitedHealthcare’s large patient base. This leverage allows Optum to secure favorable terms that competitors may struggle to obtain. Also, healthcare optimization is heavily dependent on analyzing large volumes of data related to treatment strategies, patient outcomes, and delivery arrangements. UnitedHealthcare’s scale provides Optum with an abundance of data, enabling it to develop the most effective strategies for its customers, further enhancing its competitive edge.

Merger with Change Healthcare

In 2021, UNH strategically expanded its capabilities by agreeing to acquire Change Healthcare, a firm specializing in payments, revenue cycle management, and healthcare data and analytics, for $8 billion. This acquisition was completed in October 2022, with Change Healthcare being integrated into the OptumInsight business. The merger is expected to further strengthen OptumInsight’s ability to provide advanced data analytics and optimize healthcare delivery, reinforcing UNH’s competitive position in the market.

UNH Stock Forecast: Technical analysis

The recent technical analysis of UNH stock using the Wyckoff method supports a buy recommendation. Over the past six months, the stock has experienced three distinct phases: Accumulation (March to June), Bull Rising (July), and Reaccumulation (July to present).

Accumulation phase (March to June)

During this phase, the stock underwent a four-month accumulation period, which began with a sharp “V” shape terminal shock right before the earnings call on April 16. The trend quickly stabilized, as evidenced by a secondary test at the end of April, with the stock finding support at the $475 level. This level is approximately halfway through the previous terminal shock, signaling the start of the accumulation phase.

A significant indicator of strong demand at the support level was the hammer-shaped candlestick on May 29. The long lower wick and high volume on that day confirmed the effectiveness of the $475 support level. Additionally, the gradually rising low prices in the trend, coupled with diminishing volume, signaled the end of the accumulation phase. This pattern suggests that smart money was raising bid prices to purchase the remaining stock in the market, while diminishing daily trading volume indicated fewer traders willing to sell their positions—a prerequisite for the upcoming bull market.

Bull rising (July)

The Sign of Strength (SOS) candlestick on June 28, characterized by a long real body and extremely high volume, marked the beginning of the bull trend. The stock quickly rose from $505 to $572, representing a 13% increase. The upward trend encountered resistance on July 15, but the supply was quickly absorbed by strong bull demand. This was evident in the strong breakthrough on the following day, accompanied by high trading volume, solidifying the continuation of the bull trend.

Reaccumulating(July to now)

Following the second SOS candlestick on July 17, the stock reached $581, where strong supply emerged, as indicated by the gravestone Doji on the next day. The price drop halted at the $550 level, which closely aligns with the previous resistance level, suggesting that this former resistance has now become a strong support level.

The sideways trend observed since then is expected to continue for some time before an actual breakout occurs, given the strength of both the support and resistance levels. The $550 support level has been validated by the previous resistance level and the second SOS candlestick on July 17, while the $580 resistance level has been tested by both the gravestone Doji on July 18 and the Sign of Weakness (SOW) on August 2. The last trading day(Aug/25th) worth mentioned due to candlestick’s small volume and small real body, which means limited selling pressure near the resistance level. It is a good news for long position holder and Monday might be a chance for breakout. Again, enter the position on second testing rather than the moment of breakout since it might later be rejected.

Given the current trading range, the conservative target price is set at $610, which is approximately the size of the existing trading range. This suggests a 4.4% potential upside from the current levels, making it a buy opportunity.

UNH Stock Forecast: Analysts’ Consensus

Most analysts are optimistic on UNH, according to yahoo finance. The forecasting price range is spread between $545 and $680 price per share, representing conservative and optimistic case respectively. The middle price is $616.08, very close to our $610 prediction.

UNH Stock Forecast: Conclusion

I recommend a buy on UnitedHealth Group (UNH) as the current technical analysis, supported by the Wyckoff method, indicates a 7.3% upside potential with a target price of $610. UNH’s strong synergy between Optum and UnitedHealthcare positions it strategically and financially well for continued growth.

It is worth paying attention that the stock-picking AI of I Know First has a high signal on the one-year market trend forecasts, supporting my position for the UNH stock forecast. The light green for the short-term forecasts is mildly bullish, while the darker green is a strong bullish signal for the one-year forecast.

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Please note-for trading decisions use the most recent forecast.