UnitedHealth (UNH)

Health insurance company UnitedHealth (NYSE:UNH) met Wall Street’s revenue expectations in Q3 CY2025, with sales up 12.2% year on year to $113.2 billion. Its non-GAAP profit of $2.92 per share was 4% above analysts’ consensus estimates.

Company Overview

With over 100 million people served across its various businesses and a workforce of more than 400,000, UnitedHealth Group (NYSE:UNH) operates a health insurance business and Optum, a healthcare services division that provides everything from pharmacy benefits to primary care.

Upfront premiums collected by health insurers lead to reliable revenue, but profitability ultimately depends on accurate risk assessments and the ability to control medical costs. Health insurers are also highly sensitive to regulatory changes and economic conditions such as unemployment. Going forward, the industry faces tailwinds from an aging population, increasing demand for personalized healthcare services, and advancements in data analytics to improve cost management. However, continued regulatory scrutiny on pricing practices, the potential for government-led reforms such as expanded public healthcare options, and inflation in medical costs could add volatility to margins. One big debate among investors is the long-term impact of AI and whether it will help underwriting, fraud detection, and claims processing or whether it may wade into ethical grey areas like reinforcing biases and widening disparities in medical care.

UnitedHealth Group's main competitors include other major health insurers such as Cigna (NYSE:CI), Humana (NYSE:HUM), CVS Health's Aetna (NYSE:CVS), Elevance Health (NYSE:ELV), and Centene (NYSE:CNC). In its Optum businesses, the company competes with a range of healthcare service providers including CVS Health, Walgreens Boots Alliance (NASDAQ:WBA), and numerous specialized healthcare technology and service companies.

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 $435.2 billion in revenue over the past 12 months, UnitedHealth is one of the most scaled enterprises in healthcare. This is particularly important because health insurance providers companies are volume-driven businesses due to their low margins.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Thankfully, UnitedHealth’s 11.5% annualized revenue growth over the last five years was decent. Its growth was slightly above the average healthcare company and shows its offerings resonate with customers.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. UnitedHealth’s annualized revenue growth of 9.9% over the last two years is below its five-year trend, but we still think the results were respectable.

This quarter, UnitedHealth’s year-on-year revenue growth was 12.2%, and its $113.2 billion of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 6.1% over the next 12 months, a deceleration versus the last two years. We still think its growth trajectory is satisfactory given its scale and implies the market sees success for its products and services.

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D.

UnitedHealth was profitable over the last five years but held back by its large cost base. Its average operating margin of 7.8% was weak for a healthcare business.

Analyzing the trend in its profitability, UnitedHealth’s operating margin decreased by 1.8 percentage points over the last five years. The company’s two-year trajectory also shows it failed to get its profitability back to the peak as its margin fell by 2.7 percentage points. We still like UnitedHealth but would like to see some improvement in the future.

This quarter, UnitedHealth generated an operating margin profit margin of 3.8%, down 4.8 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.

UnitedHealth’s EPS grew at an unimpressive 2.9% compounded annual growth rate over the last five years, lower than its 11.5% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.

Diving into the nuances of UnitedHealth’s earnings can give us a better understanding of its performance. As we mentioned earlier, UnitedHealth’s operating margin declined by 1.8 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q3, UnitedHealth reported adjusted EPS of $2.92, down from $7.15 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 4%. Over the next 12 months, Wall Street expects UnitedHealth’s full-year EPS of $21.01 to shrink by 20.1%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

UnitedHealth has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 6.2% over the last five years, slightly better than the broader healthcare sector.

Taking a step back, we can see that UnitedHealth’s margin dropped by 4.2 percentage points during that time. We’re willing to live with its performance for now but hope its cash conversion can rise soon. If its declines continue, it could signal increasing investment needs and capital intensity.

UnitedHealth’s free cash flow clocked in at $5.06 billion in Q3, equivalent to a 4.5% margin. The company’s cash profitability regressed as it was 8.4 percentage points lower than in the same quarter last year, which isn’t ideal considering its longer-term trend.

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).

UnitedHealth’s five-year average ROIC was 20.5%, beating other healthcare companies by a wide margin. This illustrates its management team’s ability to invest in attractive growth opportunities 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. Over the last few years, UnitedHealth’s ROIC averaged 3.2 percentage point decreases each year. Only time will tell if its new bets can bear fruit and potentially reverse the trend.

UnitedHealth reported $30.61 billion of cash and $80.14 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $31.35 billion of EBITDA over the last 12 months, we view UnitedHealth’s 1.6× net-debt-to-EBITDA ratio as safe. We also see its $2.03 billion of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see UnitedHealth beat analysts’ EPS expectations this quarter. Full-year EPS guidance was also raised. Zooming out, we think this was a decent quarter. The stock traded up 4.1% to $381.15 immediately after reporting.

Updated: December 4, 2025 at 10:37 PM EST

Before investing in or passing on UnitedHealth, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

UnitedHealth is a fine business. To kick things off, its revenue growth was good over the last five years. And while its customer momentum declined, its scale gives it meaningful leverage when negotiating reimbursement rates. On top of that, its market-beating ROIC suggests it has been a well-managed company historically.

UnitedHealth’s P/E ratio based on the next 12 months is 20.2x. When scanning the healthcare space, UnitedHealth trades at a fair valuation. If you believe in the company and its growth potential, now is an opportune time to buy shares.

Wall Street analysts have a consensus one-year price target of $388.52 on the company (compared to the current share price of $333.17), implying they see 16.6% upside in buying UnitedHealth in the short term.