Final Medicaid Rates Announcement Is Good For UnitedHealth - Analyst Upgrades Stock, Sees Strong Upside - UnitedHealth Group (NYSE:UNH)

Raymond James upgraded the rating on UnitedHealth Group Inc UNH to Strong Buy from Outperform while raising the price target to $630 from $615 following the announcement of final payment rates for Medicare Advantage plans for 2024 by Centers for Medicare & Medicaid Services (CMS) last week.
The analyst John Ransom said 2023/2024 estimates are largely unchanged as he models 2023 adj. EPS of $24.80, and 2024 adj. EPS of $28.02.
The analyst also rolled out 2025 estimates with revenue of $404B and adj. EPS of $31.65 (13% growth off 2024).
UNH trades at 17.6x of 2024E adj. EPS and 15.6x of 2025 estimate. The analyst's base case price target of $630 applies a 19.9x multiple on 2025 adj. EPS estimate, a ~1x discount to its 3-year average of 21x.
The bull case price target of $700 applies a 22.1x multiple to the 2025 EPS estimate, 22.1x is a 1x premium to the 3-yr average multiple and within the 3-yr trading range.
The bear case price target of $425 applies a 15.0x multiple on a 2025 EPS estimate that is 10% lower than the current estimate, or $28.48. 15.0x is a ~2.5x discount to its current multiple and near the low end of its 3-yr trading range.
The analyst asserts that the final rate, which includes around 1% improvement to the baseline rate (as compared to advanced notice of about a 2% cut), phases out the ICD-10 coding changes over three years and thereby offers a cushion against initial impact and provides room for behavioral change.
Price Action: UNH shares are up 3.50% at $510.51 on the last check Wednesday.

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