Stock Analysis on Net
Stock Analysis on Net

UnitedHealth Group Inc. (NYSE:UNH)

Dividend Discount Model (DDM)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.

Intrinsic Stock Value (Valuation Summary)

UnitedHealth Group Inc., dividends per share (DPS) forecast

US$

Microsoft Excel
Year Value DPSt or Terminal value (TVt) Calculation Present value at 9.70%
0 DPS01 7.29
1 DPS1 8.55 = 7.29 × (1 + 17.25%) 7.79
2 DPS2 9.83 = 8.55 × (1 + 14.96%) 8.17
3 DPS3 11.07 = 9.83 × (1 + 12.67%) 8.39
4 DPS4 12.22 = 11.07 × (1 + 10.39%) 8.44
5 DPS5 13.21 = 12.22 × (1 + 8.10%) 8.32
5 Terminal value (TV5) 894.99 = 13.21 × (1 + 8.10%) ÷ (9.70% – 8.10%) 563.48
Intrinsic value of UnitedHealth Group Inc. common stock (per share) $604.58
Current share price $493.86

Based on: 10-K (reporting date: 2023-12-31).

1 DPS0 = Sum of the last year dividends per share of UnitedHealth Group Inc. common stock. See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Required Rate of Return (r)

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 4.90%
Expected rate of return on market portfolio2 E(RM) 13.55%
Systematic risk of UnitedHealth Group Inc. common stock βUNH 0.55
 
Required rate of return on UnitedHealth Group Inc. common stock3 rUNH 9.70%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rUNH = RF + βUNH [E(RM) – RF]
= 4.90% + 0.55 [13.55% – 4.90%]
= 9.70%

Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

UnitedHealth Group Inc., PRAT model

Microsoft Excel
Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Cash dividends paid on common shares 6,761 5,991 5,280 4,584 3,932
Net earnings attributable to UnitedHealth Group common shareholders 22,381 20,120 17,285 15,403 13,839
Revenues, customers 367,533 322,132 285,273 255,639 240,269
Total assets 273,720 245,705 212,206 197,289 173,889
Shareholders’ equity attributable to UnitedHealth Group 88,756 77,772 71,760 65,491 57,616
Financial Ratios
Retention rate1 0.70 0.70 0.69 0.70 0.72
Profit margin2 6.09% 6.25% 6.06% 6.03% 5.76%
Asset turnover3 1.34 1.31 1.34 1.30 1.38
Financial leverage4 3.08 3.16 2.96 3.01 3.02
Averages
Retention rate 0.70
Profit margin 6.04%
Asset turnover 1.34
Financial leverage 3.05
 
Dividend growth rate (g)5 17.25%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

2023 Calculations

1 Retention rate = (Net earnings attributable to UnitedHealth Group common shareholders – Cash dividends paid on common shares) ÷ Net earnings attributable to UnitedHealth Group common shareholders
= (22,381 – 6,761) ÷ 22,381
= 0.70

2 Profit margin = 100 × Net earnings attributable to UnitedHealth Group common shareholders ÷ Revenues, customers
= 100 × 22,381 ÷ 367,533
= 6.09%

3 Asset turnover = Revenues, customers ÷ Total assets
= 367,533 ÷ 273,720
= 1.34

4 Financial leverage = Total assets ÷ Shareholders’ equity attributable to UnitedHealth Group
= 273,720 ÷ 88,756
= 3.08

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.70 × 6.04% × 1.34 × 3.05
= 17.25%

Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × r – D0) ÷ (P0 + D0)
= 100 × ($493.86 × 9.70% – $7.29) ÷ ($493.86 + $7.29)
= 8.10%

where:
P0 = current price of share of UnitedHealth Group Inc. common stock
D0 = the last year dividends per share of UnitedHealth Group Inc. common stock
r = required rate of return on UnitedHealth Group Inc. common stock

Dividend growth rate (g) forecast

UnitedHealth Group Inc., H-model

Microsoft Excel
Year Value gt
1 g1 17.25%
2 g2 14.96%
3 g3 12.67%
4 g4 10.39%
5 and thereafter g5 8.10%

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 17.25% + (8.10% – 17.25%) × (2 – 1) ÷ (5 – 1)
= 14.96%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 17.25% + (8.10% – 17.25%) × (3 – 1) ÷ (5 – 1)
= 12.67%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 17.25% + (8.10% – 17.25%) × (4 – 1) ÷ (5 – 1)
= 10.39%