2. UnitedHealth Group Incorporated (NYSE:UNH)
Forward P/E as on February 28: ~15.9x
10-Year Sales Growth: ~11.8%
Number of Hedge Fund Holders: 150
UnitedHealth Group Incorporated (NYSE:UNH) operates as a diversified health care company in the US. The company reported full-year and Q4 2024 results implying diversified growth in serving people more extensively at Optum and UnitedHealthcare. The company’s FY 2024 operating cost ratio came in at 13.2% as compared to 14.7% in 2023, implying gains from business portfolio refinement and robust improvement in operating efficiencies and consumer experiences. The business portfolio refinement, which includes strategic transactions, is expected to enhance growth opportunities and contributed ~80 bps, nearly half at Optum Health with the remainder split between UnitedHealthcare and Optum Insight.
For 2025, UnitedHealth Group Incorporated (NYSE:UNH) affirmed its performance outlook, including revenues of $450 billion – $455 billion, net earnings of $28.15 – $28.65 per share, adjusted net earnings of $29.50 – $30.00 per share and cash flow from operations of between $32 billion – $33 billion. The shift from fee-for-service to value-based care benefits UnitedHealth Group Incorporated (NYSE:UNH) because it has a significant network of doctors and data analytics to fuel efficiency. Bretton Capital Management, an investment management company, published its Q4 2024 investor letter. Here is what the fund said:
“We invest in UnitedHealth Group Incorporated (NYSE:UNH) because we believe this revealed preference is real. The regulatory landscape changes constantly, there is plenty of noise in the system, and it is possible to imagine a world where health insurers would not be necessary. However, the massive healthcare system we’re in today structurally relies on private companies to play the crucial role of managing care and negotiating prices, and we don’t think the US government is prepared to take all that over. It was a bad year for our investment, as the stock returned a negative 2.4%, but it trades for a meaningful discount to the market despite consistently delivering double digit earnings growth for years, including 10% last year.
First, the elephant in the room. On December 4, Brian Thompson, who ran UnitedHealth’s insurance business, was assassinated in New York City. Shell casings had the words “deny” and “depose” written on them, a bullet was inscribed with “delay.” Five days later, Luigi Mangione was arrested in Pennsylvania with what appears to be the murder weapon and a manifesto criticizing the American healthcare system. Mangione has since become a cult celebrity.
Healthcare is not a normal market. Governments have decided that healthcare is worth intervening in to achieve noneconomic outcomes, most notably providing care for people who can’t afford it. Each country’s regulatory system designs its system and rations healthcare in its own way: the UK employs providers directly and attempts a central triage function to allocate care; continental European systems typically have private providers but some version of all-payer rate setting; and the US has a decentralized model where providers can charge whatever they want, but payers can choose not to pay it, plus government-run systems like Medicare and Medicaid that cover about 35% of Americans. Every system implements some type of brake on costs, usually a combination of the government and private companies, and the US system leans more on the private sector for this than others. Our system is not without its benefits. It is vastly more lucrative for providers like surgeons and medical device companies. It also allows for some measure of money signal; if you are a rich weekend warrior with an orthopedic issue, the American system will offer a dizzying array of cutting-edge specialists where the UK would suggest getting used to the feeling of aging and stiffening one’s upper lip. However, our system violates the social expectation of the word “insurance…” (Click here to read the full text)
