United Therapeutics (UTHR)

Biotechnology company United Therapeutics (NASDAQ:UTHR) reported Q1 CY2025 results exceeding the market’s revenue expectations, with sales up 17.2% year on year to $794.4 million. Its GAAP profit of $6.63 per share was 5.1% above analysts’ consensus estimates.

Company Overview

Founded by a mother seeking treatment for her daughter's pulmonary arterial hypertension, United Therapeutics (NASDAQ:UTHR) develops and commercializes medications for chronic lung diseases and other life-threatening conditions, with a focus on pulmonary hypertension treatments.

Over the next few years, therapeutic companies, which develop a wide variety of treatments for diseases and disorders, face strong tailwinds from advancements in precision medicine (including the use of AI to improve hit rates) and growing demand for treatments targeting rare diseases. However, headwinds such as rising scrutiny over drug pricing, regulatory unknowns, and competition from larger, more resourced pharmaceutical companies could weigh on growth.

United Therapeutics' competitors in the pulmonary hypertension treatment space include Johnson & Johnson (NYSE:JNJ), which markets Uptravi and Opsumit, Merck (NYSE:MRK) with Adempas, and Pfizer (NYSE:PFE) with Revatio. In the organ manufacturing field, competitors include Revivicor (a subsidiary of United Therapeutics), eGenesis, and Recombinetics.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $2.99 billion in revenue over the past 12 months, United Therapeutics has decent scale. This is important as it gives the company more leverage in a heavily regulated, competitive environment that is complex and resource-intensive.

A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Thankfully, United Therapeutics’s 15.7% annualized revenue growth over the last five years was solid. Its growth beat the average healthcare company and shows its offerings resonate with customers, a helpful starting point for our analysis.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. United Therapeutics’s annualized revenue growth of 22.9% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

This quarter, United Therapeutics reported year-on-year revenue growth of 17.2%, and its $794.4 million of revenue exceeded Wall Street’s estimates by 8.8%.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and implies its products and services will face some demand challenges. At least the company is tracking well in other measures of financial health.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

United Therapeutics has been a well-oiled machine over the last five years. It demonstrated elite profitability for a healthcare business, boasting an average operating margin of 45.7%.

Analyzing the trend in its profitability, United Therapeutics’s operating margin rose by 22.8 percentage points over the last five years, as its sales growth gave it immense operating leverage. Zooming into its more recent performance, however, we can see the company’s margin has decreased by 2.4 percentage points on a two-year basis. Given its business quality, we’re optimistic that United Therapeutics can correct course and return to expansion.

This quarter, United Therapeutics generated an operating profit margin of 48.2%, down 4.4 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

United Therapeutics’s astounding 15.9% annual EPS growth over the last five years aligns with its revenue performance. This tells us its incremental sales were profitable.

In Q1, United Therapeutics reported EPS at $6.63, up from $6.17 in the same quarter last year. This print beat analysts’ estimates by 5.1%. Over the next 12 months, Wall Street expects United Therapeutics’s full-year EPS of $25.06 to grow 9.7%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

United Therapeutics has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the healthcare sector, averaging an eye-popping 34.8% over the last five years.

Taking a step back, we can see that United Therapeutics’s margin dropped by 10.2 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

United Therapeutics’s five-year average ROIC was 27.3%, placing it among the best healthcare companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. United Therapeutics’s ROIC has increased significantly over the last few years. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.

Companies with more cash than debt have lower bankruptcy risk.

United Therapeutics is a profitable, well-capitalized company with $2.35 billion of cash and $400 million of debt on its balance sheet. This $1.95 billion net cash position is 14.4% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly United Therapeutics blew past analysts’ revenue expectations this quarter. We were also happy its EPS outperformed Wall Street’s estimates. Zooming out, we think this was a good quarter with some key areas of upside. The stock traded up 2% to $305.90 immediately following the results.

Updated: June 14, 2025 at 11:51 PM EDT

Are you wondering whether to buy United Therapeutics or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

There are multiple reasons why we think United Therapeutics is an amazing business. First of all, the company’s revenue growth was solid over the last five years. On top of that, its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits, and its impressive operating margins show it has a highly efficient business model.

United Therapeutics’s P/E ratio based on the next 12 months is 9.7x. Analyzing the healthcare landscape today, United Therapeutics’s positive attributes shine bright. We like the stock at this bargain price.

Wall Street analysts have a consensus one-year price target of $382.09 on the company (compared to the current share price of $275.09), implying they see 38.9% upside in buying United Therapeutics in the short term.