Intrinsic value of UnitedHealth Group - UNH

Previous Close

$190.82

  Intrinsic Value

$203.69

stock screener

  Rating & Target

hold

+7%

  Value-price divergence*

-87%

Previous close

$190.82

 
Intrinsic value

$203.69

 
Up/down potential

+7%

 
Rating

hold

 
Value-price divergence*

-87%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of UNH stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 181.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  17.65
  9.40
  8.96
  8.56
  8.21
  7.89
  7.60
  7.34
  7.10
  6.89
  6.70
  6.53
  6.38
  6.24
  6.12
  6.01
  5.91
  5.82
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.32
  5.28
  5.26
  5.23
  5.21
Revenue, $m
  0
  202,215
  220,333
  239,203
  258,836
  279,250
  300,467
  322,517
  345,430
  369,244
  394,001
  419,745
  446,528
  474,404
  503,430
  533,668
  565,187
  598,054
  632,345
  668,139
  705,517
  744,567
  785,380
  828,052
  872,683
  919,380
  968,254
  1,019,419
  1,072,998
  1,129,119
  1,187,915
Variable operating expenses, $m
 
  187,613
  203,996
  221,059
  238,812
  257,272
  276,458
  296,396
  317,116
  338,650
  361,036
  379,557
  403,776
  428,983
  455,230
  482,573
  511,074
  540,794
  571,802
  604,169
  637,968
  673,279
  710,185
  748,771
  789,130
  831,356
  875,550
  921,816
  970,266
  1,021,013
  1,074,180
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  171,910
  187,613
  203,996
  221,059
  238,812
  257,272
  276,458
  296,396
  317,116
  338,650
  361,036
  379,557
  403,776
  428,983
  455,230
  482,573
  511,074
  540,794
  571,802
  604,169
  637,968
  673,279
  710,185
  748,771
  789,130
  831,356
  875,550
  921,816
  970,266
  1,021,013
  1,074,180
Operating income, $m
  12,930
  14,602
  16,337
  18,144
  20,023
  21,978
  24,009
  26,120
  28,314
  30,594
  32,965
  40,188
  42,752
  45,421
  48,200
  51,095
  54,113
  57,260
  60,543
  63,970
  67,549
  71,287
  75,195
  79,280
  83,554
  88,025
  92,704
  97,603
  102,732
  108,106
  113,735
EBITDA, $m
  14,985
  19,882
  21,663
  23,519
  25,449
  27,456
  29,542
  31,710
  33,963
  36,304
  38,738
  41,270
  43,903
  46,644
  49,498
  52,471
  55,570
  58,801
  62,173
  65,692
  69,367
  73,206
  77,219
  81,415
  85,803
  90,394
  95,199
  100,230
  105,498
  111,016
  116,797
Interest expense (income), $m
  1,055
  1,154
  1,431
  1,721
  2,022
  2,337
  2,663
  3,003
  3,355
  3,722
  4,103
  4,499
  4,911
  5,340
  5,786
  6,250
  6,734
  7,238
  7,764
  8,313
  8,885
  9,483
  10,108
  10,761
  11,444
  12,158
  12,905
  13,687
  14,506
  15,363
  16,261
Earnings before tax, $m
  11,863
  13,448
  14,906
  16,423
  18,001
  19,641
  21,346
  23,118
  24,959
  26,872
  28,861
  35,689
  37,841
  40,081
  42,414
  44,845
  47,379
  50,022
  52,779
  55,657
  58,663
  61,804
  65,087
  68,519
  72,110
  75,866
  79,799
  83,915
  88,227
  92,742
  97,474
Tax expense, $m
  4,790
  3,631
  4,025
  4,434
  4,860
  5,303
  5,763
  6,242
  6,739
  7,255
  7,793
  9,636
  10,217
  10,822
  11,452
  12,108
  12,792
  13,506
  14,250
  15,027
  15,839
  16,687
  17,573
  18,500
  19,470
  20,484
  21,546
  22,657
  23,821
  25,040
  26,318
Net income, $m
  7,017
  9,817
  10,882
  11,989
  13,141
  14,338
  15,583
  16,876
  18,220
  19,617
  21,069
  26,053
  27,624
  29,259
  30,963
  32,737
  34,587
  36,516
  38,529
  40,630
  42,824
  45,117
  47,513
  50,019
  52,640
  55,382
  58,253
  61,258
  64,405
  67,702
  71,156

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  122,810
  134,362
  146,401
  158,939
  171,984
  185,548
  199,646
  214,297
  229,522
  245,345
  261,794
  278,900
  296,696
  315,218
  334,505
  354,597
  375,539
  397,378
  420,163
  443,946
  468,782
  494,729
  521,847
  550,200
  579,856
  610,884
  643,358
  677,355
  712,956
  750,245
  789,312
Adjusted assets (=assets-cash), $m
  122,810
  134,362
  146,401
  158,939
  171,984
  185,548
  199,646
  214,297
  229,522
  245,345
  261,794
  278,900
  296,696
  315,218
  334,505
  354,597
  375,539
  397,378
  420,163
  443,946
  468,782
  494,729
  521,847
  550,200
  579,856
  610,884
  643,358
  677,355
  712,956
  750,245
  789,312
Revenue / Adjusted assets
  0.000
  1.505
  1.505
  1.505
  1.505
  1.505
  1.505
  1.505
  1.505
  1.505
  1.505
  1.505
  1.505
  1.505
  1.505
  1.505
  1.505
  1.505
  1.505
  1.505
  1.505
  1.505
  1.505
  1.505
  1.505
  1.505
  1.505
  1.505
  1.505
  1.505
  1.505
Average production assets, $m
  13,847
  15,166
  16,525
  17,940
  19,413
  20,944
  22,535
  24,189
  25,907
  27,693
  29,550
  31,481
  33,490
  35,580
  37,757
  40,025
  42,389
  44,854
  47,426
  50,110
  52,914
  55,842
  58,903
  62,104
  65,451
  68,954
  72,619
  76,456
  80,475
  84,684
  89,094
Working capital, $m
  0
  7,886
  8,593
  9,329
  10,095
  10,891
  11,718
  12,578
  13,472
  14,401
  15,366
  16,370
  17,415
  18,502
  19,634
  20,813
  22,042
  23,324
  24,661
  26,057
  27,515
  29,038
  30,630
  32,294
  34,035
  35,856
  37,762
  39,757
  41,847
  44,036
  46,329
Total debt, $m
  32,970
  40,875
  49,158
  57,784
  66,759
  76,091
  85,791
  95,870
  106,345
  117,231
  128,549
  140,318
  152,561
  165,304
  178,573
  192,397
  206,805
  221,830
  237,506
  253,869
  270,956
  288,807
  307,465
  326,972
  347,375
  368,722
  391,064
  414,454
  438,947
  464,603
  491,481
Total liabilities, $m
  84,536
  92,441
  100,724
  109,350
  118,325
  127,657
  137,357
  147,436
  157,911
  168,797
  180,115
  191,884
  204,127
  216,870
  230,139
  243,963
  258,371
  273,396
  289,072
  305,435
  322,522
  340,373
  359,031
  378,538
  398,941
  420,288
  442,630
  466,020
  490,513
  516,169
  543,047
Total equity, $m
  38,274
  41,921
  45,677
  49,589
  53,659
  57,891
  62,290
  66,861
  71,611
  76,548
  81,680
  87,017
  92,569
  98,348
  104,365
  110,634
  117,168
  123,982
  131,091
  138,511
  146,260
  154,355
  162,816
  171,663
  180,915
  190,596
  200,728
  211,335
  222,442
  234,076
  246,265
Total liabilities and equity, $m
  122,810
  134,362
  146,401
  158,939
  171,984
  185,548
  199,647
  214,297
  229,522
  245,345
  261,795
  278,901
  296,696
  315,218
  334,504
  354,597
  375,539
  397,378
  420,163
  443,946
  468,782
  494,728
  521,847
  550,201
  579,856
  610,884
  643,358
  677,355
  712,955
  750,245
  789,312
Debt-to-equity ratio
  0.861
  0.980
  1.080
  1.170
  1.240
  1.310
  1.380
  1.430
  1.490
  1.530
  1.570
  1.610
  1.650
  1.680
  1.710
  1.740
  1.770
  1.790
  1.810
  1.830
  1.850
  1.870
  1.890
  1.900
  1.920
  1.930
  1.950
  1.960
  1.970
  1.980
  2.000
Adjusted equity ratio
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  7,017
  9,817
  10,882
  11,989
  13,141
  14,338
  15,583
  16,876
  18,220
  19,617
  21,069
  26,053
  27,624
  29,259
  30,963
  32,737
  34,587
  36,516
  38,529
  40,630
  42,824
  45,117
  47,513
  50,019
  52,640
  55,382
  58,253
  61,258
  64,405
  67,702
  71,156
Depreciation, amort., depletion, $m
  2,055
  5,280
  5,326
  5,375
  5,426
  5,478
  5,533
  5,590
  5,649
  5,710
  5,774
  1,082
  1,151
  1,223
  1,297
  1,375
  1,457
  1,541
  1,630
  1,722
  1,818
  1,919
  2,024
  2,134
  2,249
  2,370
  2,495
  2,627
  2,765
  2,910
  3,062
Funds from operations, $m
  9,978
  15,097
  16,208
  17,364
  18,566
  19,816
  21,116
  22,466
  23,869
  25,327
  26,843
  27,135
  28,775
  30,482
  32,260
  34,112
  36,043
  38,057
  40,158
  42,352
  44,642
  47,036
  49,537
  52,153
  54,889
  57,752
  60,748
  63,886
  67,171
  70,612
  74,218
Change in working capital, $m
  183
  678
  707
  736
  766
  796
  827
  860
  894
  929
  966
  1,004
  1,045
  1,087
  1,132
  1,179
  1,229
  1,282
  1,337
  1,396
  1,458
  1,523
  1,592
  1,664
  1,741
  1,821
  1,906
  1,995
  2,090
  2,189
  2,293
Cash from operations, $m
  9,795
  14,419
  15,501
  16,628
  17,801
  19,020
  20,288
  21,606
  22,975
  24,398
  25,877
  26,130
  27,730
  29,395
  31,128
  32,933
  34,814
  36,775
  38,821
  40,956
  43,185
  45,513
  47,946
  50,489
  53,149
  55,931
  58,842
  61,890
  65,081
  68,423
  71,924
Maintenance CAPEX, $m
  0
  -476
  -521
  -568
  -617
  -667
  -720
  -774
  -831
  -890
  -952
  -1,015
  -1,082
  -1,151
  -1,223
  -1,297
  -1,375
  -1,457
  -1,541
  -1,630
  -1,722
  -1,818
  -1,919
  -2,024
  -2,134
  -2,249
  -2,370
  -2,495
  -2,627
  -2,765
  -2,910
New CAPEX, $m
  -1,705
  -1,319
  -1,359
  -1,415
  -1,472
  -1,531
  -1,591
  -1,654
  -1,718
  -1,786
  -1,857
  -1,931
  -2,009
  -2,091
  -2,177
  -2,268
  -2,364
  -2,465
  -2,572
  -2,685
  -2,803
  -2,929
  -3,061
  -3,200
  -3,347
  -3,502
  -3,665
  -3,837
  -4,018
  -4,209
  -4,410
Cash from investing activities, $m
  -9,355
  -1,795
  -1,880
  -1,983
  -2,089
  -2,198
  -2,311
  -2,428
  -2,549
  -2,676
  -2,809
  -2,946
  -3,091
  -3,242
  -3,400
  -3,565
  -3,739
  -3,922
  -4,113
  -4,315
  -4,525
  -4,747
  -4,980
  -5,224
  -5,481
  -5,751
  -6,035
  -6,332
  -6,645
  -6,974
  -7,320
Free cash flow, $m
  440
  12,624
  13,621
  14,645
  15,712
  16,822
  17,977
  19,178
  20,425
  21,722
  23,069
  23,184
  24,640
  26,153
  27,728
  29,368
  31,075
  32,854
  34,708
  36,641
  38,659
  40,766
  42,966
  45,264
  47,667
  50,179
  52,807
  55,557
  58,435
  61,449
  64,605
Issuance/(repayment) of debt, $m
  990
  7,905
  8,283
  8,626
  8,975
  9,332
  9,700
  10,080
  10,475
  10,886
  11,317
  11,769
  12,244
  12,743
  13,269
  13,823
  14,408
  15,025
  15,676
  16,363
  17,087
  17,851
  18,657
  19,507
  20,403
  21,347
  22,342
  23,390
  24,493
  25,655
  26,878
Issuance/(repurchase) of shares, $m
  -851
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  1,250
  7,905
  8,283
  8,626
  8,975
  9,332
  9,700
  10,080
  10,475
  10,886
  11,317
  11,769
  12,244
  12,743
  13,269
  13,823
  14,408
  15,025
  15,676
  16,363
  17,087
  17,851
  18,657
  19,507
  20,403
  21,347
  22,342
  23,390
  24,493
  25,655
  26,878
Total cash flow (excl. dividends), $m
  1,768
  20,529
  21,904
  23,271
  24,687
  26,154
  27,677
  29,257
  30,900
  32,608
  34,386
  34,953
  36,883
  38,896
  40,997
  43,191
  45,483
  47,879
  50,384
  53,004
  55,746
  58,617
  61,623
  64,772
  68,070
  71,527
  75,149
  78,947
  82,929
  87,104
  91,483
Retained Cash Flow (-), $m
  -4,444
  -3,647
  -3,756
  -3,912
  -4,070
  -4,232
  -4,399
  -4,571
  -4,750
  -4,937
  -5,132
  -5,337
  -5,552
  -5,779
  -6,017
  -6,269
  -6,534
  -6,814
  -7,109
  -7,420
  -7,749
  -8,095
  -8,461
  -8,846
  -9,253
  -9,681
  -10,132
  -10,607
  -11,107
  -11,634
  -12,189
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  16,882
  18,148
  19,359
  20,616
  21,922
  23,278
  24,686
  26,150
  27,671
  29,254
  29,616
  31,331
  33,118
  34,980
  36,922
  38,949
  41,065
  43,275
  45,584
  47,998
  50,522
  53,162
  55,925
  58,818
  61,846
  65,018
  68,340
  71,821
  75,470
  79,294
Discount rate, %
 
  7.00
  7.35
  7.72
  8.10
  8.51
  8.93
  9.38
  9.85
  10.34
  10.86
  11.40
  11.97
  12.57
  13.20
  13.86
  14.55
  15.28
  16.04
  16.85
  17.69
  18.57
  19.50
  20.48
  21.50
  22.58
  23.70
  24.89
  26.13
  27.44
  28.81
PV of cash for distribution, $m
 
  15,778
  15,748
  15,489
  15,096
  14,573
  13,930
  13,179
  12,333
  11,412
  10,434
  9,030
  8,066
  7,104
  6,166
  5,269
  4,430
  3,661
  2,972
  2,367
  1,847
  1,412
  1,055
  771
  549
  381
  258
  169
  108
  67
  40
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

UnitedHealth Group Incorporated operates as a diversified health and well-being company in the United States. The company’s UnitedHealthcare segment offers consumer-oriented health benefit plans and services for national employers, public sector employers, mid-sized employers, small businesses, individuals, and military service members; and health care coverage, and health and well-being services to individuals aged 50 and older addressing their needs for preventive and acute health care services. It also provides services dealing with chronic disease and other specialized issues for older individuals; Medicaid plans, Children’s Health Insurance Program, and health care programs; and health services, including commercial health and dental benefits. This segment serves through a network of 1 million physicians and other health care professionals, as well as approximately 6,000 hospitals and other facilities. Its OptumHealth segment offers health management services, including care delivery and management, wellness and consumer engagement, distribution, and health financial services. This segment serves individuals through programs offered by employers, payers, government entities, and directly with the care delivery systems. The company’s OptumInsight segment provides software and information products, and business process outsourcing and support services to hospital systems, physicians, health plans, governments, life sciences companies, and other organizations. Its OptumRx segment offers pharmacy care services and programs, including retail network contracting, home delivery and specialty pharmacy, and purchasing and clinical, as well as develops programs in areas, such as step therapy, formulary management, drug adherence, and disease/drug therapy management. UnitedHealth Group Incorporated was founded in 1974 and is based in Minnetonka, Minnesota.

FINANCIAL RATIOS  of  UnitedHealth Group (UNH)

Valuation Ratios
P/E Ratio 25.9
Price to Sales 1
Price to Book 4.7
Price to Tangible Book
Price to Cash Flow 18.5
Price to Free Cash Flow 22.5
Growth Rates
Sales Growth Rate 17.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 9.6%
Cap. Spend. - 3 Yr. Gr. Rate 5.5%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 67.3%
Total Debt to Equity 86.1%
Interest Coverage 12
Management Effectiveness
Return On Assets 6.5%
Ret/ On Assets - 3 Yr. Avg. 6.6%
Return On Total Capital 10.2%
Ret/ On T. Cap. - 3 Yr. Avg. 10.6%
Return On Equity 19.5%
Return On Equity - 3 Yr. Avg. 18.1%
Asset Turnover 1.6
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 8.1%
EBITDA Margin - 3 Yr. Avg. 8.4%
Operating Margin 7%
Oper. Margin - 3 Yr. Avg. 7.3%
Pre-Tax Margin 6.4%
Pre-Tax Margin - 3 Yr. Avg. 6.8%
Net Profit Margin 3.8%
Net Profit Margin - 3 Yr. Avg. 3.9%
Effective Tax Rate 40.4%
Eff/ Tax Rate - 3 Yr. Avg. 41.6%
Payout Ratio 32.2%

UNH stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the UNH stock intrinsic value calculation we used $184840 million for the last fiscal year's total revenue generated by UnitedHealth Group. The default revenue input number comes from 2016 income statement of UnitedHealth Group. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our UNH stock valuation model: a) initial revenue growth rate of 9.4% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 7%, whose default value for UNH is calculated based on our internal credit rating of UnitedHealth Group, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of UnitedHealth Group.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of UNH stock the variable cost ratio is equal to 93%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for UNH stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for UnitedHealth Group.

Corporate tax rate of 27% is the nominal tax rate for UnitedHealth Group. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the UNH stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for UNH are equal to 7.5%.

Life of production assets of 29.1 years is the average useful life of capital assets used in UnitedHealth Group operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for UNH is equal to 3.9%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $38274 million for UnitedHealth Group - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 951.173 million for UnitedHealth Group is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of UnitedHealth Group at the current share price and the inputted number of shares is $181.5 billion.

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COMPANY NEWS

▶ Molina Healthcare: Double The Upgrade, Double The Fun   [Aug-17-17 11:16AM  Barrons.com]
▶ US Market Indexes Gain on Wednesday   [10:53AM  GuruFocus.com]
▶ [$$] UnitedHealth Names David Wichmann as New CEO   [12:41AM  The Wall Street Journal]
▶ [$$] UnitedHealth Names David Wichmann as New CEO   [10:10AM  The Wall Street Journal]
▶ UnitedHealth CEO Hemsley to step down; Wichmann named top executive   [08:17AM  American City Business Journals]
▶ How the Dow Jones Industrial Average Has Performed   [Aug-08-17 04:58PM  Market Realist]
▶ UnitedHealth Group Names Two New Directors   [06:50AM  Business Wire]
▶ UnitedHealth Group Is Still in a Healthy Uptrend   [Aug-04-17 01:29PM  TheStreet.com]
▶ Which Stocks Are The Best Mutual Funds Buying And Selling?   [12:48PM  Investor's Business Daily]
▶ What's working: Health insurer stocks   [07:16AM  CNBC Videos]
▶ Jeff Auxier's Summer 2017 Market Commentary   [11:56AM  GuruFocus.com]
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▶ [$$] Data-Crunching Technology Spurs Insurance Dollars   [07:30AM  The Wall Street Journal]
▶ Technology and health care lift stocks to record highs   [Jul-19-17 04:37PM  Associated Press]
▶ A revenue record: UnitedHealths quarterly sales top $50B for first time   [11:55AM  American City Business Journals]
▶ Company News for July 19, 2017   [10:33AM  Zacks]
▶ Whats News: Business & Finance   [12:46AM  The Wall Street Journal]
▶ Asian shares mostly higher as focus turns to central bankers   [Jul-18-17 11:25PM  Associated Press]
Stock chart of UNH Financial statements of UNH
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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