Dear Reader,
A lot of folks have written in to ask me what I think of United Healthgroup (SYM: UNH).
Here’s my recommendation:
So, what do I think it’s worth?
That’s the question readers have been asking since biotech is something I cover quite a lot in Biotech Insider.
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The stock has gotten hammered from around $600 a share to under $300 a share since the Trump Justice Department decided to go after them.
A lot of folks say, Dylan, we know you’re a big value guy - you love to buy stocks when they look cheap.
I’ll tell you what - I did the math this weekend.
I looked at UNH, their free cash flow, etc.
And I came up with a value - by any reasonable calculation you want to use, based on the company’s numbers - at $568 per share…
Almost double its current share price.
So in one way, it looks like a great deal.
But those numbers are really based on the prior five years of free cash flow.
The tricky thing about a situation like this is you don’t know what free cash flow will look like going forward.
It’s hard to say at this point what parts of their business that generate free cash flow will change.
For example, last year the company earned $26.82 billion in free cash flow.
And they’re now being charged with secretly paying nursing homes to reduce hospital transfers… all kinds of malfeasance.
What’s tricky about UnitedHealth Group, which is a dominant supercompetitor, is that if they miss earnings one quarter, it’s all over…
And trickier still is, we don’t know how hard Trump’s Justice Department will go at them.
Will they be forced to shut down pieces of their business?
And if so, what does that look like?
If they lose, say, 20% of their earnings, how does that change the business?
And how does it change earnings?
We don’t have answers to these questions yet.
We will have them soon.
At some point, UnitedHealth Group will be a buy.
But it’s too early to say that now is the time.
Justice Department investigations can get really hairy.
I’ve seen them force companies to break up - breaking off units.
I’ve also seen them just insert monitors into companies to make sure they don’t misbehave.
I’ve seen them end with a slap on the wrist and a fine.
We know from watching Trump go after Harvard and other institutions that he can go pretty hard.
But we don’t know yet how aggressively they’ll go after UHC, given the ups and downs of the political environment.
There’s so much we don’t know - and that’s why the stock is selling so cheap. That’s why it’s a terrific bargain.
If the company largely stays the same, maybe with one big fine - even a $2 billion fine, or a $5 billion fine, it would be fine…
A mere speed bump for a big, cash-producing machine.
Since so many of you wrote in asking about UHC over Memorial Day weekend, I just wanted to tackle that head-on.
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