DCF Studio

    UNH · NYQ · Healthcare

    UnitedHealth Group Incorporated

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 648.96

    Market price

    USD 376.90

    Implied upside

    +72.2%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedReported capital expenditure averages just 0.86% of revenue, which is too low to be the company's real investment - property trusts and similar structures invest through lines that are not reported as capex. Capex has been set to 1.03% of revenue so the forecast is not handed free growth. The accounts do not separate depreciation from amortisation, so the combined charge is used - if a large part of it is amortisation of an acquisition, the reported capex is probably right and this substitution is not. Override it if the reported figure is right.

    Value Per Share

    Perpetuity growth
    USD 648.96+72.2%
    Exit multiple
    USD 953.11+152.9%
    Market price
    USD 376.90

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn24bn48bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 498.4bnUSD 555.0bnUSD 618.0bnUSD 688.1bnUSD 766.2bn+11.4%
    EBITUSD 37.1bnUSD 41.3bnUSD 46.0bnUSD 51.2bnUSD 57.0bn+11.4%
    NOPATUSD 29.3bnUSD 32.6bnUSD 36.3bnUSD 40.5bnUSD 45.1bn+11.4%
    Add depreciation & amortisationUSD 5.1bnUSD 5.7bnUSD 6.4bnUSD 7.1bnUSD 7.9bn+11.4%
    Less capital expenditureUSD -5.1bnUSD -5.7bnUSD -6.4bnUSD -7.1bnUSD -7.9bn+11.4%
    Less increase in working capitalUSD 1.8bnUSD 2.0bnUSD 2.2bnUSD 2.4bnUSD 2.7bn-11.4%
    Free cashflow to firmUSD 31.1bnUSD 34.6bnUSD 38.5bnUSD 42.9bnUSD 47.8bn+11.4%
    Discount factor0.96150.88900.82200.76000.7026-
    Present valueUSD 29.9bnUSD 30.8bnUSD 31.7bnUSD 32.6bnUSD 33.6bn+3.0%
    Present Value Of The ForecastUSD 158.5bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.747Reported 0.622, pulled toward 1.0 (Blume)
    Cost of equity9.11%Risk-free + beta x equity risk premium
    Cost of debt5.15%Interest expense / average total debt
    Market capitalisationUSD 338.3bn81.2% of capital
    Total debtUSD 78.4bn18.8% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC8.16%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 648.96

    75% of EV

    Forecast FCFF, final year
    USD 47.8bn
    Capex at depreciation, working capital in reinvestment
    USD 45.1bn
    Less reinvestment at g/ROIC (15.8% of NOPAT)
    USD -7.1bn
    Capitalised
    USD 37.9bn
    ROIC (reported)
    15.8%
    Terminal value, undiscounted
    USD 687.4bn
    Terminal value, discounted
    USD 483.0bn
    Enterprise value
    USD 641.5bn
    Less net debt
    USD 50.3bn
    Equity value
    USD 591.2bn

    Exit at 16.7x EBITDA

    Value per shareUSD 953.11

    83% of EV

    Terminal value, undiscounted
    USD 1081.7bn
    Terminal value, discounted
    USD 760.1bn
    Enterprise value
    USD 918.5bn
    Less net debt
    USD 50.3bn
    Equity value
    USD 868.3bn

    Spread between methods: 38%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    6.16%873.02937.481019.241126.501273.66
    7.16%711.50749.07794.46850.49921.53
    8.16%598.44621.74648.96681.25720.23
    9.16%514.85529.89547.02566.76589.81
    10.16%450.54460.48471.59484.11498.35

    Outlined: this model. Green text: above today's price of 376.90. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year11.4%0.1%-11.2pp
    EBIT margin7.4%4.5%-2.9pp
    Discount rate8.2%11.9%+3.8pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.