Intrinsic value of UnitedHealth Group - UNH

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$172.33

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$172.33

 
Intrinsic value

$198.51

 
Up/down potential

+15%

 
Rating

hold

 
Value-price divergence* premium content

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*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 165.2

 

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
  9.00
  8.60
  8.24
  7.92
  7.62
  7.36
  7.13
  6.91
  6.72
  6.55
  6.39
  6.26
  6.13
  6.02
  5.92
  5.82
  5.74
  5.67
  5.60
  5.54
  5.49
  5.44
  5.39
  5.35
  5.32
  5.29
  5.26
  5.23
  5.21
  5.19
Revenue, $m
  0
  201,476
  218,803
  236,832
  255,579
  275,066
  295,316
  316,360
  338,230
  360,966
  384,608
  409,202
  434,799
  461,451
  489,215
  518,152
  548,327
  579,808
  612,666
  646,978
  682,823
  720,284
  759,451
  800,415
  843,274
  888,128
  935,085
  984,255
  1,035,758
  1,089,714
  1,146,252
Variable operating expenses, $m
 
  186,944
  202,612
  218,915
  235,868
  253,489
  271,800
  290,829
  310,605
  331,164
  352,542
  370,024
  393,170
  417,270
  442,376
  468,543
  495,829
  524,295
  554,007
  585,034
  617,447
  651,322
  686,739
  723,781
  762,536
  803,095
  845,556
  890,020
  936,591
  985,381
  1,036,506
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
  186,944
  202,612
  218,915
  235,868
  253,489
  271,800
  290,829
  310,605
  331,164
  352,542
  370,024
  393,170
  417,270
  442,376
  468,543
  495,829
  524,295
  554,007
  585,034
  617,447
  651,322
  686,739
  723,781
  762,536
  803,095
  845,556
  890,020
  936,591
  985,381
  1,036,506
Operating income, $m
  12,930
  14,532
  16,190
  17,917
  19,712
  21,577
  23,516
  25,531
  27,625
  29,802
  32,065
  39,178
  41,629
  44,181
  46,839
  49,610
  52,499
  55,513
  58,659
  61,944
  65,376
  68,962
  72,712
  76,634
  80,738
  85,032
  89,528
  94,236
  99,167
  104,333
  109,746
EBITDA, $m
  14,985
  19,809
  21,513
  23,285
  25,129
  27,045
  29,036
  31,105
  33,255
  35,490
  37,815
  40,233
  42,750
  45,370
  48,100
  50,945
  53,912
  57,007
  60,238
  63,611
  67,136
  70,819
  74,670
  78,697
  82,911
  87,321
  91,938
  96,773
  101,836
  107,141
  112,700
Interest expense (income), $m
  1,055
  1,154
  1,419
  1,696
  1,984
  2,284
  2,596
  2,920
  3,257
  3,607
  3,971
  4,349
  4,742
  5,152
  5,578
  6,023
  6,486
  6,968
  7,472
  7,998
  8,547
  9,120
  9,720
  10,346
  11,002
  11,688
  12,405
  13,157
  13,943
  14,767
  15,631
Earnings before tax, $m
  11,863
  13,378
  14,772
  16,221
  17,727
  19,293
  20,920
  22,611
  24,368
  26,195
  28,095
  34,829
  36,887
  39,029
  41,261
  43,587
  46,013
  48,544
  51,187
  53,946
  56,829
  59,842
  62,993
  66,288
  69,736
  73,345
  77,123
  81,079
  85,224
  89,566
  94,115
Tax expense, $m
  4,790
  3,612
  3,988
  4,380
  4,786
  5,209
  5,648
  6,105
  6,579
  7,073
  7,586
  9,404
  9,959
  10,538
  11,140
  11,768
  12,424
  13,107
  13,820
  14,565
  15,344
  16,157
  17,008
  17,898
  18,829
  19,803
  20,823
  21,891
  23,010
  24,183
  25,411
Net income, $m
  7,017
  9,766
  10,783
  11,841
  12,941
  14,084
  15,272
  16,506
  17,789
  19,122
  20,509
  25,426
  26,927
  28,491
  30,120
  31,819
  33,590
  35,437
  37,366
  39,381
  41,485
  43,685
  45,985
  48,390
  50,907
  53,542
  56,300
  59,188
  62,213
  65,383
  68,704

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
  133,871
  145,384
  157,363
  169,820
  182,768
  196,223
  210,206
  224,738
  239,844
  255,553
  271,895
  288,903
  306,612
  325,060
  344,287
  364,337
  385,254
  407,087
  429,886
  453,703
  478,594
  504,619
  531,837
  560,315
  590,118
  621,319
  653,990
  688,211
  724,062
  761,630
Adjusted assets (=assets-cash), $m
  122,810
  133,871
  145,384
  157,363
  169,820
  182,768
  196,223
  210,206
  224,738
  239,844
  255,553
  271,895
  288,903
  306,612
  325,060
  344,287
  364,337
  385,254
  407,087
  429,886
  453,703
  478,594
  504,619
  531,837
  560,315
  590,118
  621,319
  653,990
  688,211
  724,062
  761,630
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
  15,111
  16,410
  17,762
  19,168
  20,630
  22,149
  23,727
  25,367
  27,072
  28,846
  30,690
  32,610
  34,609
  36,691
  38,861
  41,125
  43,486
  45,950
  48,523
  51,212
  54,021
  56,959
  60,031
  63,246
  66,610
  70,131
  73,819
  77,682
  81,729
  85,969
Working capital, $m
  0
  7,858
  8,533
  9,236
  9,968
  10,728
  11,517
  12,338
  13,191
  14,078
  15,000
  15,959
  16,957
  17,997
  19,079
  20,208
  21,385
  22,613
  23,894
  25,232
  26,630
  28,091
  29,619
  31,216
  32,888
  34,637
  36,468
  38,386
  40,395
  42,499
  44,704
Total debt, $m
  32,970
  40,537
  48,458
  56,700
  65,270
  74,178
  83,436
  93,056
  103,053
  113,447
  124,255
  135,498
  147,199
  159,383
  172,075
  185,304
  199,098
  213,489
  228,510
  244,195
  260,581
  277,707
  295,612
  314,338
  333,930
  354,435
  375,901
  398,379
  421,923
  446,589
  472,435
Total liabilities, $m
  84,536
  92,103
  100,024
  108,266
  116,836
  125,744
  135,002
  144,622
  154,619
  165,013
  175,821
  187,064
  198,765
  210,949
  223,641
  236,870
  250,664
  265,055
  280,076
  295,761
  312,147
  329,273
  347,178
  365,904
  385,496
  406,001
  427,467
  449,945
  473,489
  498,155
  524,001
Total equity, $m
  38,274
  41,768
  45,360
  49,097
  52,984
  57,024
  61,222
  65,584
  70,118
  74,831
  79,733
  84,831
  90,138
  95,663
  101,419
  107,418
  113,673
  120,199
  127,011
  134,124
  141,555
  149,321
  157,441
  165,933
  174,818
  184,117
  193,851
  204,045
  214,722
  225,907
  237,628
Total liabilities and equity, $m
  122,810
  133,871
  145,384
  157,363
  169,820
  182,768
  196,224
  210,206
  224,737
  239,844
  255,554
  271,895
  288,903
  306,612
  325,060
  344,288
  364,337
  385,254
  407,087
  429,885
  453,702
  478,594
  504,619
  531,837
  560,314
  590,118
  621,318
  653,990
  688,211
  724,062
  761,629
Debt-to-equity ratio
  0.861
  0.970
  1.070
  1.150
  1.230
  1.300
  1.360
  1.420
  1.470
  1.520
  1.560
  1.600
  1.630
  1.670
  1.700
  1.730
  1.750
  1.780
  1.800
  1.820
  1.840
  1.860
  1.880
  1.890
  1.910
  1.930
  1.940
  1.950
  1.960
  1.980
  1.990
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
  9,766
  10,783
  11,841
  12,941
  14,084
  15,272
  16,506
  17,789
  19,122
  20,509
  25,426
  26,927
  28,491
  30,120
  31,819
  33,590
  35,437
  37,366
  39,381
  41,485
  43,685
  45,985
  48,390
  50,907
  53,542
  56,300
  59,188
  62,213
  65,383
  68,704
Depreciation, amort., depletion, $m
  2,055
  5,278
  5,322
  5,369
  5,417
  5,467
  5,520
  5,574
  5,630
  5,689
  5,750
  1,055
  1,121
  1,189
  1,261
  1,335
  1,413
  1,494
  1,579
  1,667
  1,760
  1,856
  1,957
  2,063
  2,173
  2,289
  2,410
  2,537
  2,669
  2,809
  2,954
Funds from operations, $m
  9,978
  15,043
  16,106
  17,210
  18,358
  19,551
  20,791
  22,080
  23,419
  24,811
  26,259
  26,480
  28,048
  29,680
  31,381
  33,154
  35,003
  36,932
  38,945
  41,048
  43,245
  45,541
  47,942
  50,453
  53,081
  55,831
  58,710
  61,725
  64,883
  68,191
  71,659
Change in working capital, $m
  183
  649
  676
  703
  731
  760
  790
  821
  853
  887
  922
  959
  998
  1,039
  1,083
  1,129
  1,177
  1,228
  1,281
  1,338
  1,398
  1,461
  1,528
  1,598
  1,671
  1,749
  1,831
  1,918
  2,009
  2,104
  2,205
Cash from operations, $m
  9,795
  14,990
  15,430
  16,507
  17,627
  18,791
  20,001
  21,259
  22,566
  23,924
  25,337
  25,521
  27,050
  28,641
  30,298
  32,025
  33,826
  35,704
  37,664
  39,710
  41,847
  44,080
  46,414
  48,856
  51,409
  54,081
  56,878
  59,807
  62,874
  66,087
  69,454
Maintenance CAPEX, $m
  0
  -476
  -519
  -564
  -610
  -659
  -709
  -761
  -815
  -872
  -930
  -991
  -1,055
  -1,121
  -1,189
  -1,261
  -1,335
  -1,413
  -1,494
  -1,579
  -1,667
  -1,760
  -1,856
  -1,957
  -2,063
  -2,173
  -2,289
  -2,410
  -2,537
  -2,669
  -2,809
New CAPEX, $m
  -1,705
  -1,264
  -1,300
  -1,352
  -1,406
  -1,461
  -1,519
  -1,578
  -1,640
  -1,705
  -1,773
  -1,845
  -1,920
  -1,999
  -2,082
  -2,170
  -2,263
  -2,361
  -2,464
  -2,573
  -2,688
  -2,810
  -2,938
  -3,072
  -3,214
  -3,364
  -3,522
  -3,688
  -3,863
  -4,047
  -4,240
Cash from investing activities, $m
  -9,355
  -1,740
  -1,819
  -1,916
  -2,016
  -2,120
  -2,228
  -2,339
  -2,455
  -2,577
  -2,703
  -2,836
  -2,975
  -3,120
  -3,271
  -3,431
  -3,598
  -3,774
  -3,958
  -4,152
  -4,355
  -4,570
  -4,794
  -5,029
  -5,277
  -5,537
  -5,811
  -6,098
  -6,400
  -6,716
  -7,049
Free cash flow, $m
  440
  13,250
  13,611
  14,591
  15,610
  16,671
  17,774
  18,919
  20,110
  21,347
  22,633
  22,685
  24,075
  25,521
  27,027
  28,594
  30,227
  31,930
  33,705
  35,557
  37,491
  39,511
  41,621
  43,826
  46,132
  48,544
  51,068
  53,709
  56,475
  59,371
  62,405
Issuance/(repayment) of debt, $m
  990
  7,567
  7,921
  8,242
  8,570
  8,908
  9,257
  9,620
  9,998
  10,393
  10,808
  11,243
  11,701
  12,184
  12,692
  13,229
  13,794
  14,391
  15,021
  15,685
  16,386
  17,125
  17,905
  18,726
  19,592
  20,505
  21,466
  22,478
  23,544
  24,666
  25,846
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
  7,567
  7,921
  8,242
  8,570
  8,908
  9,257
  9,620
  9,998
  10,393
  10,808
  11,243
  11,701
  12,184
  12,692
  13,229
  13,794
  14,391
  15,021
  15,685
  16,386
  17,125
  17,905
  18,726
  19,592
  20,505
  21,466
  22,478
  23,544
  24,666
  25,846
Total cash flow (excl. dividends), $m
  1,768
  20,817
  21,532
  22,833
  24,181
  25,579
  27,031
  28,539
  30,108
  31,741
  33,441
  33,928
  35,777
  37,705
  39,719
  41,823
  44,022
  46,321
  48,726
  51,243
  53,877
  56,636
  59,525
  62,552
  65,724
  69,049
  72,534
  76,187
  80,019
  84,037
  88,251
Retained Cash Flow (-), $m
  -4,444
  -3,494
  -3,592
  -3,738
  -3,887
  -4,040
  -4,198
  -4,363
  -4,534
  -4,713
  -4,901
  -5,099
  -5,306
  -5,525
  -5,756
  -5,999
  -6,256
  -6,526
  -6,812
  -7,113
  -7,431
  -7,766
  -8,120
  -8,492
  -8,885
  -9,299
  -9,735
  -10,194
  -10,677
  -11,186
  -11,721
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
 
  17,323
  17,940
  19,095
  20,294
  21,539
  22,833
  24,177
  25,574
  27,027
  28,540
  28,830
  30,470
  32,180
  33,963
  35,824
  37,766
  39,795
  41,914
  44,130
  46,446
  48,870
  51,406
  54,060
  56,839
  59,750
  62,799
  65,994
  69,342
  72,851
  76,530
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
 
  16,190
  15,567
  15,278
  14,860
  14,319
  13,664
  12,907
  12,062
  11,146
  10,180
  8,790
  7,844
  6,903
  5,987
  5,112
  4,296
  3,548
  2,878
  2,291
  1,788
  1,366
  1,020
  745
  531
  368
  249
  163
  104
  64
  38
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 23.4
Price to Sales 0.9
Price to Book 4.3
Price to Tangible Book
Price to Cash Flow 16.7
Price to Free Cash Flow 20.3
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% 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 958.661 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 $165.2 billion.


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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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