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UnitedHealth Group (UNH) Undervalued: 5% Upside from DCF Valuation

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  Published in Stocks and Investing on Friday, November 21st 2025 at 8:40 GMT by Seeking Alpha

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Retirement 2: Healthcare Giants to Buy at Discounted Prices – A Comprehensive Summary

The Seeking Alpha article “Retirement 2: Healthcare Giants to Buy at Discounted Prices” (published September 15 2024) argues that two of the most prominent healthcare‑sector stalwarts—UnitedHealth Group (UNH) and CVS Health (CVS)—are currently trading at valuations below what the author believes reflects their true intrinsic worth. The piece is written by user “retirement2,” a frequent contributor who focuses on long‑term, income‑generating equity selections for retirees. The author blends financial‑statements analysis, macro‑economic context, and a few qualitative insights to build a case that these companies present attractive entry points for investors looking for steady cash flow and growth potential in a low‑interest‑rate, aging‑population environment.

1. Why the Current Discount Matters

a. Market Over‑reaction to Short‑Term Earnings

Both UNH and CVS have seen their share prices dip in the last 12 months as the market reacted to quarterly earnings reports that, while still profitable, showed modest earnings‑growth lagging behind pre‑pandemic highs. The article cites a Bloomberg piece that discusses the broader sell‑off in healthcare shares after the U.S. Treasury rates rose to 4.25 % in August 2024, which amplified the “discount” on the valuation multiples.

b. The Demographic Dividend

The author references the U.S. Census Bureau’s “Population Projection: The Future of the American Workforce” to argue that the 65‑plus cohort is set to grow by 12 % over the next decade, meaning the demand for managed‑care and drug‑distribution services will only accelerate. This demographic shift is said to create a “steady tailwind” for both companies.

2. UnitedHealth Group (UNH)

a. Business Model and Growth Drivers

The article notes that UnitedHealth’s Optum unit—providing data analytics, health‑tech services, and pharmacy benefits management—has been the fastest‑growing segment, adding 6.7 % YoY revenue in Q3 2024. The author links to an Insider’s article that dives into Optum’s “digital‑health initiatives” as a future revenue stream.

b. Regulatory Landscape

A key risk section highlights the Medicare Access and CHIP Reauthorization Act (MACRA) changes in 2025, which will increase payments for value‑based care. The author links to a WhiteHouse.gov press release outlining the new payment models, emphasizing that UNH is well‑positioned to benefit due to its broad payer‑service mix.

c. Valuation Argument

Using a discounted‑cash‑flow (DCF) model based on the author’s proprietary software, the intrinsic value per share is pegged at $440. Given the current price of $420, the article estimates a 5 % upside. The author argues that the “margin of safety” is reinforced by the company’s high free‑cash‑flow yield and low debt‑to‑equity ratio.

3. CVS Health (CVS)

a. Integration of Aetna and Retail Pharmacies

The article details CVS’s 2023 acquisition of Aetna and the subsequent integration costs, which have been steadily amortized. It links to a CNBC article that discusses the “post‑merger synergy” realized in Q4 2024—particularly the 3.5 % uplift in pharmacy‑benefit‑management (PBM) revenue.

b. Omnichannel Growth

CVS’s “digital‑pharmacy” platform, noted in a LinkedIn post by the company’s CEO, is highlighted as a driver for both new customer acquisition and cross‑sell of health‑tech services. The article includes a link to the company’s 2024 “Omnichannel Strategy” presentation, which showcases a projected 4 % CAGR in digital prescriptions.

c. Regulatory Risks

The author references a Congressional hearing transcript (via a link to the House Committee on Health) where lawmakers questioned CVS’s role in “pharmacy‑benefit‑management pricing.” The article warns that tighter regulation could compress margins, but it also argues that CVS’s scale gives it bargaining power that could mitigate such risks.

d. Valuation Argument

The author calculates an intrinsic value of $115 per share for CVS, citing a DCF that factors in projected synergy capture and a 3 % discount rate. At the current price of $110, CVS offers roughly a 4 % upside, and the author emphasizes the company’s dividend growth rate (3.2 % annually) as a key benefit for retirees.

4. Comparative Analysis

The article provides a side‑by‑side comparison of the two stocks, highlighting differences in growth profile, dividend yield, and margin stability:

The author notes that a balanced portfolio of both could deliver a blended yield of ~2.2 % with an overall upside of ~4–5 % over the next three years, while mitigating sector‑specific risks.

5. Practical Take‑aways for Retirees

1. Rebalance with a Focus on Income – Allocate 15–20 % of a retirement portfolio to UNH and 10–15 % to CVS, based on desired dividend income versus growth.
2. Use Tax‑Efficient Accounts – Since both companies pay significant dividends, placing them in tax‑advantaged accounts (Roth IRA or 401(k)) can preserve capital gains and reduce ordinary‑income tax exposure.
3. Stay Informed on Healthcare Policy – The article links to a Healthcare.gov “Policy Tracker” that aggregates upcoming legislative changes that could impact PBM reimbursement and value‑based care incentives.
4. Monitor Earnings Surprises – Quarterly earnings releases for UNH and CVS are highlighted as key events; the author recommends using Seeking Alpha’s “Earnings Alerts” service to stay ahead.
5. Avoid Over‑Concentration – Even though the two companies are “giants,” the article warns against putting >30 % of an investment portfolio into a single sector, citing diversification benefits.

6. Additional Resources Linked Within the Article

7. Bottom Line

The “Retirement 2” article presents a data‑driven, risk‑aware case that UnitedHealth Group and CVS Health are undervalued relative to their earnings, cash‑flow, and future growth prospects. By combining solid dividend yields with robust free‑cash‑flow generation, these companies can offer retirees both income and modest upside. The author’s valuation framework is conservative, and the proposed upside of 4–5 % is framed as a “margin of safety” rather than a speculative gamble.

For retirees or those planning for retirement, the takeaway is clear: add a mix of UNH and CVS to your portfolio, monitor healthcare policy developments, and keep a disciplined allocation to avoid sector concentration. The article invites readers to delve deeper into each company’s earnings releases, policy updates, and the broader macro‑environment—all of which are linked directly from the original Seeking Alpha piece.