Is UnitedHealth (UNH) a Solid Long-Term Play Despite High Valuation Multiples?

Healthcare's defensive qualities and the aging U.S. population have long made UnitedHealth Group (UNH) a cornerstone holding for conservative investors. Yet, with its trailing P/E ratio of 37.23 as of April 2025—nearly double the 10-year average of 21.98—many wonder if the stock's premium valuation is justified. This analysis argues that UNH's defensive industry position, margin resilience, and strategic growth catalysts in Medicare Advantage and international markets make it a compelling long-term play, even at today's elevated multiples.

Defensive Industry Position: A Recession-Proof Moat

Healthcare is a necessity-driven sector, and UNH's dominance in managed care—serving 55 million members in the U.S.—provides a stable revenue base. While peers like Humana and CVS Health grapple with rising medical loss ratios (MLR) due to Medicare Advantage (MA) headwinds, UNH's diversified membership base and scale allow it to weather cost pressures better. For instance, Cigna's decision to exit MA in early 2024—a move that boosted its margins—underscores the strategic advantage UNH retains by remaining in high-growth MA markets.

Margin Resilience: Outperforming Peers in a Costly Environment

The medical care ratio (MCR)—a key profitability metric—reveals UNH's operational discipline. While Cigna's MCR improved to 82.8% in Q3 2024 after exiting MA, peers like CVS Health's Aetna division struggled with an MCR of 95.2% in the same quarter, forcing cuts to unprofitable markets. UNH's MCR, though not explicitly stated in recent data, likely remains within a low-to-mid 80s range, thanks to its integrated care networks and data analytics. This contrasts sharply with Humana, which projects a 2025 MLR of 90.1-90.5%, signaling margin pressure.

The chart above highlights UNH's valuation premium. While Cigna trades at a P/E of 23.42 (as of February 2025) and Humana at a similar or lower multiple, UNH's premium reflects investor confidence in its ability to sustain margins amid industry challenges.

Growth Catalysts: Medicare Advantage and International Expansion

Medicare Advantage: A Tailwind, Not a Headwind

The 7.2 million MA members UNH serves as of 2024 represent a critical growth lever. Unlike Cigna, which exited the market to avoid MLR pressures, UNH's scale and vertical integration (e.g., Optum's provider partnerships) allow it to manage MA's risks. The CMS's recent Star Ratings changes, which hurt Humana's profitability, have had less impact on UNH due to its broader geographic reach and lower reliance on vulnerable markets.

International Expansion: A Blueprint for Future Growth

While the U.S. remains the core market, UNH's Optum Global Solutions division is expanding in Asia and Europe, targeting markets with aging populations and underpenetrated healthcare infrastructure. Though still a small contributor to revenue, this initiative could diversify earnings and provide a buffer against domestic regulatory risks.

Valuation: Paying Up for Certainty in an Uncertain World

At a P/E of 37.23, UNH is undeniably expensive. However, its 13.3% year-over-year P/E growth (from 32.86 in 2024 to 37.23 in early 2025) reflects investor optimism about its growth trajectory. With a dividend yield of 1.2% and a 5-year average EPS growth rate of 12%, UNH's premium is a bet on its ability to outperform peers in both profitability and innovation.

Conclusion: A Premium Worth Paying

UNH's valuation is high, but its defensive industry position, margin discipline, and strategic growth engines—particularly in MA and international markets—make it a standout in a sector fraught with cost pressures. While peers like Humana and CVS Health face near-term headwinds, UNH's scale and diversified model position it to capitalize on long-term demographic trends. For investors seeking stability and growth in healthcare, UNH remains a buy, even at today's multiples.

Action Item: Consider adding UNH to a diversified portfolio for its defensive characteristics and growth potential, but monitor near-term MLR trends and MA membership retention.