Intrinsic Calculation For UnitedHealth Group Suggests It's 39% Undervalued

 

• The projected fair value for UnitedHealth Group is US$776 based on 2 Stage Free Cash Flow to Equity

• UnitedHealth Group's US$470 share price signals that it might be 39% undervalued

• Our fair value estimate is 32% higher than UnitedHealth Group's analyst price target of US$589

Today we'll do a simple run through of a valuation method used to estimate the attractiveness of UnitedHealth Group Incorporated (NYSE:UNH) as an investment opportunity by estimating the company's future cash flows and discounting them to their present value. Our analysis will employ the Discounted Cash Flow (DCF) model. It may sound complicated, but actually it is quite simple!

We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. In the first stage we need to estimate the cash flows to the business over the next ten years. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.

https://finance.yahoo.com/news/intrinsic-calculation-unitedhealth-group-incorporated-110120319.html