UNITEDHEALTH GROUP INC (UNH) stock intrinsic value fair value estimate & owner earnings analysis

UnitedHealth Group is the largest US health insurer (UnitedHealthcare: employer, Medicare Advantage, Medicaid and individual plans) and also owns Optum, which runs pharmacy benefits (Optum Rx), doctor and care-delivery businesses (Optum Health) and health technology (Optum Insight). 2025 revenue was $447.6 billion, of which $352.2 billion was insurance premiums. WHAT CHANGED IN THE BUSINESS. We measure the cash earnings left for shareholders after interest, stock compensation and replacing worn-out equipment, and we remove one-off swings in working capital and gains or losses on selling businesses. On that measure earnings per share rose from $7.92 in 2016 to a peak of $24.94 in 2023, then fell to $22.33 in 2024 and $14.53 in 2025. The driver is the share of premiums paid out as medical claims: 83.2% in 2023, 85.5% in 2024, 89.1% in 2025. One point is about $3.5 billion before tax, roughly $3 a share. Management says its 2025 pricing came in well short of actual medical cost trend; Medicare Advantage funding was cut; Optum Health's value-based contracts lost money; and in the fourth quarter it booked $2.5 billion of restructuring and other charges plus $0.8 billion of reserves on provider loans and other customer balances tied to the 2024 Change Healthcare cyberattack. For 2026 it expects Medicare Advantage, Medicaid and value-based-care membership to shrink, and it describes the proposed 2027 Medicare Advantage rate update as far below cost trend. THE EARNINGS LEVEL. We use $18.43 a share, the midpoint of 2024 ($22.33) and 2025 ($14.53). We start in 2024 because that is when claims costs broke away from pricing and the company began reshaping itself (selling its Brazil operations, restructuring Optum Health); 2023 and earlier reflect an 83% claims ratio and Medicare funding that no longer exist, so we do not use them. We also do not project the first half of 2026 forward. That half was strong: net earnings of $11.8 billion versus $9.7 billion a year earlier (+21%) and earnings from operations of $17.0 billion versus $14.3 billion (+19%), on essentially flat premiums of $174.5 billion; on our measure about $14.3 a share versus about $11.5. But the first quarter was flat on a year earlier ($6.3 billion in both years) and only the second quarter was clearly better (+61% against a weak comparison), and the first half is the seasonally stronger one: in 2025 second-half earnings from operations were just $4.7 billion against $14.3 billion in the first half. One strong quarter does not move the level. GROWTH CHECK. Cash earnings per share fell 35% in 2025 ($22.33 to $14.53). The base case's first year is $18.80: 2% above our level, but 29% above what 2025 actually delivered. We think that step is justified by dated facts in the filings: the fourth-quarter 2025 charges above do not recur (they include a $623 million reserve for 2026 value-based-care losses that is already booked); pricing and benefit changes took effect on January 1, 2026; and the second-quarter 2026 report filed August 10, 2026 shows operating earnings up 19% in the half. BASE CASE: about $359 a share. Cash earnings start at $18.43 and grow 2% a year for ten years to $22.47, then stay flat. The growth credited is annual repricing of premiums to medical cost trend, a mechanism that has lifted revenue every year since 2014, including 2020 (10.3% a year over 2016 to 2025; cash earnings per share 7.0% a year). We credit far less than that record because membership is shrinking in 2026 and because $1.7 billion a year of acquired-intangible amortization, which cash earnings add back, is wearing off (scheduled to fall from $1.3 billion in 2026 to $0.9 billion by 2030); the company also spends heavily on acquisitions ($4.5 billion in 2025, $13.4 billion in 2024, $10.1 billion in 2023) that cash earnings do not charge, so we give no growth credit for acquiring businesses. Left out because it is not yet secured: a return to 2019-2023 profitability (cash earnings of 6.2% to 6.5% of revenue versus 3.0% in 2025), an Optum Health turnaround, share gains and cost savings. After year ten we hold earnings flat rather than fade them, because cash earnings have been positive in every year of 2016-2025 (even the $7.92 of 2016, when individual-market insurance losses hit) and annual repricing keeps operating; we assume nothing beyond that. BEAR CASE: about $219. Cost trend outruns pricing again: the 2027 Medicare Advantage proposal is far below trend and management expects elevated care activity to continue. The claims ratio sits near 90.3% for three years (2027-2029), 3 points above the 2024-2025 average of 87.3%, which costs about $10.5 billion before tax and $8.4 billion after tax at a 20% rate. Cash earnings drop to about $9.2 a share (roughly $8.4 billion), a 37% fall from 2025, comparable to 2025's own 35% fall; three years because both the 2015-2016 individual-market losses and the 2024-2025 episode took years to reprice out. They then recover to $11.6 and settle at $14.0, slightly below 2025's actual, with no growth, because the filing says risk-model revisions have reduced and will continue to reduce Medicare funding. The company owes about $73 billion of borrowings (interest of $4.0 billion in 2025); these costs are already deducted in the earnings above, so nothing further is subtracted. Even here, earnings after interest stay positive (about $12 billion before interest, roughly three times the interest bill), though the roughly $8 billion annual dividend would absorb nearly all of it for three years. Tangible book value is negative (equity of $104.5 billion against $110.6 billion of goodwill plus other intangibles), so the shares are worth more than the capital only because the franchise earns cash every year, including in this case. The 2025 report says required insurance-subsidiary capital will rise as claims rise; we assume that is met from retained earnings and the $28.6 billion of cash rather than new shares, and if shares had to be issued at depressed prices this case would be lower. BULL CASE: about $470. The 2026 repricing sticks and the claims ratio returns to about 85.5%, where 2024 ended. Cash earnings reach $20.4 in year one and $22.33 (the 2024 level) in year two, then grow 4% a year, below the 7% record, to $30.56 in year ten, flat thereafter. The evidence is the first-half 2026 result above. Not credited: a return to the 2023 peak of $24.94, Optum Health scaling, acquisitions. DEBT. In every case the borrowings are already charged for through interest, so the values above are what the business is worth to shareholders; no credit lines were drawn at December 31, 2025 and bank covenants were met. WHAT WE COULD NOT RESOLVE. A federal lawsuit (a 2011 whistleblower claim the Justice Department joined in 2017) alleges improper Medicare risk-adjustment submissions; a court-appointed Special Master recommended judgment for UnitedHealth in March 2025, the Justice Department objected in April 2025, and the filing says the outcome cannot be estimated. Federal risk-adjustment audits of past years could also reduce payments retroactively. No amount is disclosed, so no case includes one; a loss would come on top of these values. Minority holders of subsidiaries take about $0.75 billion a year (about $0.8 a share) that our cash earnings do not remove. Our September 2026 estimates were built on a different earnings basis and are not comparable. MARGIN-OF-SAFETY PRICE: $165. We are moderately sure of the $18.43 level: it rests on two noisy years in a new regime, and management misjudged its own medical costs two years running. The worst plausible outcome is the bear case plus a federal ruling or audit recovery that no case models; the company would survive it (cash of $28.6 billion, though not all is freely available because insurers must hold statutory capital; no drawn credit lines; interest covered about three times even in the bear case), but with $73 billion of debt and negative tangible book value, shareholders lose first and the dividend could be cut. If we are wrong on the three things most likely to go wrong: with no recovery at all, $14.53 flat is worth about $242; if earnings do not persist beyond year ten, the base case is worth about $150; and another squeeze like the bear case is worth about $219. The price assumes a holding period of three to four years, with a dividend of about $9 a share a year, which base-case earnings cover and bear-case earnings barely do. At $165 the dividend alone is about 5.5% a year; if the shares came to reflect base value within four years the base case implies a return in the high 20s a year, and the bear path implies the low teens. Only the loss of earnings after year ten would leave the shares worth less than that price, which is why the margin-of-safety price is $165 and not more.