UnitedHealth has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 14.5% to $344.03 per share while the index has gained 10.4%.

Is now the time to buy UNH? Find out in our full research report, it’s free.

Why Does UNH Stock Spark Debate?

With over 100 million people served across its various businesses and a workforce of more than 400,000, UnitedHealth Group (NYSE: UNH) operates a health insurance business and Optum, a healthcare services division that provides everything from pharmacy benefits to primary care.

Two Things to Like:

1. Economies of Scale Give It Negotiating Leverage with Suppliers

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $435.2 billion in revenue over the past 12 months, UnitedHealth is one of the most scaled enterprises in healthcare. This is particularly important because health insurance providers companies are volume-driven businesses due to their low margins.

2. Stellar ROIC Showcases Lucrative Growth Opportunities

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

UnitedHealth’s five-year average ROIC was 20.4%, beating other healthcare companies by a wide margin. This illustrates its management team’s ability to invest in attractive growth opportunities and produce tangible results for shareholders.

One Reason to be Careful:

Declining Customer Base Reflects Product and Sales Weakness

Revenue growth can be broken down into the number of customers and the average spend per customer. Both are important because an increasing customer base leads to more upselling opportunities while the revenue per customer shows how successful a company was in executing its upselling strategy.

UnitedHealth’s total customers came in at 54.08 million in the latest quarter, and over the last two years, their count averaged 1.7% year-on-year declines. This performance was underwhelming and shows the company lost deals and renewals. It also suggests there may be increasing competition or market saturation.

Final Judgment

UnitedHealth’s merits more than compensate for its flaws, but at $344.03 per share (or 20.5× forward P/E), is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.

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