UnitedHealth gains as Bernstein upgrades on valuation and growth

Shares of UnitedHealth Group (NYSE:) are trading 1% higher pre-open Tuesday following an upgrade to Outperform at Bernstein.

“We are upgrading UNH to Outperform on attractive valuation, potential for hardening pricing in 2024, and attractive LT growth in value based care, government MCO and OptumInsights,” analysts commented.

The firm set a new $603 price target (up from $595), suggesting a 25% upside from current levels.

Last year, the firm downgraded UNH due to concerns regarding its valuation (1.3x compared to the current 0.9x), anticipating increased utilization in 2023, and apprehensions about MA rate pressures. They felt that these factors were not adequately accounted for in the stock price. Presently, they believe that the majority of these concerns have been factored into the stock price, and the current valuation fails to recognize the long-term growth prospects of UNH’s businesses, undervaluing them.

Considering the YTD decline of approximately 9% in the stock and the valuation dropping to 0.9x of SPX, they are of the opinion that the majority of concerns regarding medical costs have been factored into the price. UNH, in their view, stands out as a superior Managed Care Organization (MCO) and Value-Based Care (VBC) company. Furthermore, they see the current valuation presents an exceptional chance to acquire a stake in a business with significant growth potential ahead, all at an appealing valuation.