ROB STUYCK
rstuyck@cleveland-research.com
(216) 649-7210
ADAM DOEHREL
adoehrel@cleveland-research.com
(216) 649-7189
NICK FROSTINO
nfrostino@cleveland-research.com
(216) 649-7319
October 10, 2024
UnitedHealth Group (UNH: $591.22 – BUY)
Important disclosures can be found in Appendix
UNH: 2024 Utilization Trending Slightly Better Than Guidance; 2025 MA,
Commercial & OptumRx Outlooks Appear Strong (Cleveland Research)
Key Points:
1. 3Q utilization appears to have remained elevated; IV shortages may provide some MLR relief in 4Q
2. 2025 MA AEP feedback indicates UHC well positioned for share gains with some modest margin yr/yr pressure
3. Research indicates 2025 UHC commercial selling season likely tracking net positive due to Surest momentum and
Humana's Commercial exit
4. OptumRx 2025 selling season net positive; PBM profits benefiting from biosimilars and GLP1s
Read Through To The Model
• Modeling 3Q24 MLR of 84.5%, up 218bps yr/yr and 20bps above guidance
• Given the likely softer than expected 4Q elective volumes, modeling 4Q MLR of 84.8% vs. guidance of “85%+”.
• We are modeling 2024 UHC segment profit growth of 4% yr/yr or $17.02bb, at the low end of initial guidance of
$17.0-$17.5bb.
• We are modeling OptumRx’s segment profit growth of 11.4% yr/yr in 2024 or $5.7bb, above management’s initial
guidance of $5.3-$5.45bb.
• Modeling 2024 EPS of $27.78, $0.08 above consensus and 2025 EPS growth of 13% yr/yr.
Business Mix
• UHC 77% of revenues, 49% of Op earnings.
o UHC Revenue mix 45% Medicare, 27% Commercial, 24% Medicaid, 4% International.
• Optum 23% of revenue, 51% of Op. earnings.
o Optum Revenue mix: 51% OptumRx, 42% OptumHealth, 9% OptumInsight
Conclusion
3Q utilization remains elevated and in line with 2Q. Some recent disruptions to elective surgeries due to IV shortages
appear may provide a modest benefit to 4Q MLR. As a result, our 2H24 MLR expectations are largely in line with guidance.
The 2025 selling seasons appear strong across the business. Feedback indicates UHC is likely to be net positive in the 2025
Commercial selling season (though, to a lesser extent than 2025) with momentum from Surest, large account wins and
HUM’s Commercial exit. OptumRx is likely to be net positive for 2025 with additional benefits from biosimilars and GLP1s.
As noted in our recent work, feedback indicates UNH is likely well-positioned to see relatively stable margins and share
MA share gains for 2025 (9/27 Report). Overall, we are $0.08 above consensus in 2024 and $0.18 above in 2025.
UnitedHealth Group Incorporated Earnings and Market Data Summary
CRC Consensus CRC Consensus
1Q24 - $6.91 1Q25E $7.43 $7.60 Shares Outstanding 923.4 ROE (Latest Quarter) 16.4%
2Q24 - $6.80 2Q25E $7.64 $7.67 Market Cap (mm) $537,042 Book Value/Share $97.02
3Q24E $7.02 $7.02 3Q25E $8.46 $8.06 52-Week High $607.94 Debt/Cap 38.7%
4Q24E $7.04 $6.94 4Q25E $7.82 $7.82 52-Week Low $436.38 Revenue (Trailing 4Qs) $383,263
Dec-24E $27.78 $27.70 Dec-25E $31.34 $31.16 AVG Daily Volume 2,996,917 5-Year Growth Rate 14.2%
UnitedHealth Group (UNH) - CRC
October 10, 2024
Page 2
ROB STUYCK
rstuyck@cleveland-research.com
(216) 649-7210
ADAM DOEHREL
adoehrel@cleveland-research.com
(216) 649-7189
NICK FROSTINO
nfrostino@cleveland-research.com
(216) 649-7319
Highlights:
3Q Utilization Likely Continues To Reflect Elevated Medicare Volumes; Early Feedback Indicates IV Shortage May
Provide Modest Relief In 4Q
• Our research indicates 3Q utilization remains elevated, similar to 2Q levels, with some pockets of trend continuing
to pick up q/q.
• Overall, we expect 3Q MLR is unlikely to be an area of relief for UNH or other payers.
• We are modeling 3Q MLR of 84.5%, 20bps above guidance and up 218bps yr/yr.
• Our recent research indicates health systems have started delaying elective surgeries over the past week in
response to IV shortages. As a result, we expect 4Q utilization to see some modest relief (10/9 Note).
• Given the likely softer than expected 4Q elective volumes, we are modeling 4Q MLR of 84.8%, 20bps below
guidance of “85%+”.
Research Indicates UNH’s Likely To See Strong MA Enrollment In AEP; Expecting Margins To Be Inline With Targets
• Our research indicates UNH will be the primary MA share winner in 2025 driven by more stable benefits being in
line with competitors, external sales growth and stronger provider networks.
• Feedback indicates UNH is likely to exit plans totaling 300-400k lives in 2025. These exits will likely primarily impact
NY, CA, TX, FL and WA. Feedback indicates UNH’s alternative plans should recapture a high percentage of those
members.
• Feedback indicates UNH may see some yr/yr margin pressure in MA due to large net enrollments. However, we
expect margins are likely to still be within target margin range.
• One area of focus in 2025 for UNH has been investing in CSNPs and DSNPs for 2025. We expect CSNPs to be a
growing area of focus among UNH’s competitors in coming years.
UNH Commercial Share Gains Likely Net Positive In 2025
• Following a strong 2024 commercial selling season, our research indicates UNH’s 2025 performance will be
positive, but to a lesser degree.
• In terms of 2025 large-employer wins, UNH appears to have won the majority of CSCO’s previously-bifurcated
business (UNH previously split with CI). We also believe UNH and IBX won COR from CVS and Highmark.
• Our research indicates the key driver to account wins continues to be Surest and benefitting from large employers
looking to consolidate carriers for cost savings. We are also seeing UNH win some share with smaller employers
in markets across the US.
• Our research also indicates UNH will benefit from HUM exiting the commercial market for 2025.
• On the negative front, our research indicates MS will remain bifurcated but switch from UNH to CVS on a portion
of the contract for 2025 (CI will remain in).
• We are modeling 2024 UHC segment profit growth of 4% yr/yr or $17.02bb, at the low end of initial guidance of
$17.0-$17.5bb.
OptumRx Likely Slightly Net Positive For 2025 Selling Season; Biosimilars & GLP1s Continue To Be Modest Tailwind In
2025.
• Our research indicates OptumRx 2025 retention is in the high 90s with key wins including: Aloha Care, National
Railroad, and Aspirus. These wins help offset losing GE Healthcare, Baylor Scott & White and IOE. As it relates to
specialty pharmacy growth in 2025, we believe OptumRx is likely at risk of losing Capital Rx.
• Looking out to 2026, OptumRx has a much larger % of their book out to bid (similar to CVS and ESI) vs. 2025. In
addition, we see growing risk over the next 2 years from a growing number of large plan sponsors evaluating
bifurcated models (i.e. BS of CA model).
UnitedHealth Group (UNH) - CRC
October 10, 2024
Page 3
ROB STUYCK
rstuyck@cleveland-research.com
(216) 649-7210
ADAM DOEHREL
adoehrel@cleveland-research.com
(216) 649-7189
NICK FROSTINO
nfrostino@cleveland-research.com
(216) 649-7319
• Our research indicates OptumRx’s biosimilar strategy (grandfathering existing Humira utilizers through 1H24) will
yield enhanced rebate value/profits in 2025.
• Employers are pushing the PBMs for additional options to manage the weight loss category. Our research
indicates OptumRx is providing more optionality in how they can cover weight loss drugs in 2024/2025, including
additional BMI UM options and additional options within their WeightEngage solution (can now work with Virta,
Calibrate or use Real Appeal). Our research also indicates both UHC and OptumRx will be covering Wegovy CV
indication in 2025 across their template commercial formularies.
• We are modeling OptumRx’s segment profit growth of 11.4% yr/yr in 2024 or $5.7bb, above management’s initial
guidance of $5.3-$5.45bb.
UnitedHealth Group (UNH) - CRC
October 10, 2024
Page 4
ROB STUYCK
rstuyck@cleveland-research.com
(216) 649-7210
ADAM DOEHREL
adoehrel@cleveland-research.com
(216) 649-7189
NICK FROSTINO
nfrostino@cleveland-research.com
(216) 649-7319
APPENDIX
Important Disclosures
Important Disclosures can be found at www.cleveland-research.com/clients/disclosures
Companies Mentioned
UnitedHealth Group Inc – (UNH: $591.22 – Buy)
CVS Health Corp – (CVS: $65.94 – Neutral)
Cigna Group – (CI: $346.72 – Neutral)
Cencora Inc – (COR: $221.19 – Neutral)
Humana Inc – (HUM: $245.45 – Neutral)
Cisco Systems Inc – (CSCO: $53.56 – Neutral)
Morgan Stanley – (MS: $109.04 – Not Covered)
GE HealthCare Technologies Inc – (GEHC: $90.77 – Not Covered)
AbbVie Inc – (ABBV: $194.74 – Not Covered)
Cleveland Research Company - Ratings Distribution
Rating
Percent
Buy
25%
Neutral
75%
Underperform
0%
Disclosures
Buy: The stock’s return is expected to exceed the market due to superior fundamentals and positive catalysts.
Underperform: The stock’s total return is expected to underperform the market due to weak fundamentals and a lack of catalysts.
Neutral: The stock is expected to be in line with the market due to full valuation and/or a lack of catalysts.
Valuation and Risk: Price targets are established under various valuation methods including P/E, P/S, EV/EBITDA on financial estimates based on forward earnings.
Price targets are not established for every stock. The price target’s effectiveness may be affected by various outside factors. Risk assessments can be found in the most
recent research on these stocks.
Other Disclosures: We, Rob Stuyck, Adam Doehrel, and Nick Frostino, certify that the views expressed in the research report(s) accurately reflect our personal views
about the subject security(s). Further, we certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendations or
views contained in the research report(s). CRC, its partners and principals, have investments and own a minority interest in a fund manager which may or may not have
a position in this security in the funds it manages and oversees. Cleveland Research Company provides no investment banking services of any type on this or any company.
Proprietary research and Information contained herein which forms the basis for findings or opinions expressed by Cleveland Research Company may be used by
Cleveland Research for other purposes in the course of compensated consulting and other services rendered to third parties. The information transmitted is intended
only for the person or entity to which it is addressed. Any review, retransmission, dissemination or other use of, or taking of any action in reliance upon, this information
by persons or entities other than the intended recipient is prohibited. If you received this in error, please contact the sender and delete the material from any computer.
Member FINRA/SIPC
